BEIJING: China’s banks will see slower asset growth this year as regulators curb risk in the financial industry, said the chairman of China Zheshang Bank Co, one of the fastest-growing listed Chinese lenders. Shen Renkang estimated asset growth for China’s 21 national banks will be less than 10 percent this year, compared to an industry-wide 15.8 percent expansion last year. Banks were feeling the impact of Beijing’s campaign to reduce financial risk, which included reducing the opportunity for regulatory arbitrate and bolstering oversight of bank assets. “For banks like us, in the adolescence of our growth, those changes bring relatively big pressure,” Shen, a delegate to China’s annual meeting of its national parliament, told Reuters on Tuesday. Over the past five years, China’s banking assets have more than doubled, reaching 232 trillion yuan ($33.6 trillion) by the end of 2016, according to China Banking Regulatory Commission (CBRC) statistics. “The requirement for moving some off-balance sheet business to balance sheet, and very strict controls over non-performing loans (NPLs), means there are a lot more risk-weighted assets to digest,” Shen said. Shen did not say how much Zheshang Bank, a medium-sized firm with assets exceeding 1.18 trillion yuan by last June, would be affected by Beijing’s efforts to curb risk.
Banks also faced “huge” demand to raise additional capital, following aggressive write-offs of bad loans, Shen said. In February, Zheshang Bank received approval from the CBRC to raise as much as 15 billion yuan to bolster Tier 1 Capital through the issue of non-public preference shares. The company, which is due to release its annual results this month, reported a 42 percent year-on-year rise in net profit for the first half of 2016. Shen also expected rapidly rising bad loans and sharply declining interest margins at Chinese banks to “stabilize” this year. Chinese banks’ net interest margin (NIM), the difference between interest earned on loans and that paid out to depositors and an important measure for bank profitability, was squeezed by interest rate liberalization over the last three years. NIM shrank between 30 and 40 basis points across the banking sector in 2016. The volume of commercial bank NPLs reached 1.51 trillion yuan at the end of last year, the highest since 2005, even as the NPL ratio fell slightly to 1.74 percent, the first drop in five years.
