EY listed-bank report highlights continued profit slowdown

The net profit growth of China's 16 A-share listed banks continued to slow in the first quarter of the year, while their non-performing loan balance exceeded 1 trillion yuan ($153.7 billion) along with a continued increase in the NPL ratio, according to a new EY report on the Chinese banking industry.

The A-share listed banks posted net profit growth of 2.66 percent in the period, falling 59 basis points from the previous year, the report said. The figures mean the net profit growth of listed banks, however, has now slowed for five consecutive years.

Steven Xu, partner of EY Financial Services in Greater China, said: "Narrower interest margin and increased provision resulted in further slowdown in net profit growth."

Last year, the average net interest margin narrowed to 2.54 percent, down 7 basis points from 2014, due to interest rate liberalization and five successive interest rate cuts by the People's Bank of China, the central bank.

The NPL balance of A-share listed banks, on the contrary, rose 7 percent from the end of 2015 to 1.07 trillion yuan. The NPL ratio also climbed 5 basis points to 1.69 percent, according to the report.

It also showed as asset quality declined, listed banks made increased provisions in 2015, and loan impairment losses rose by 55 percent from a year earlier.

To handle the challenges of slower profit growth and rising bad loans amid China's economic downturn, Xu said commercial banks must transform their business models, technology and institutional systems.

State-owned commercial lenders should also take the opportunity of mixed-ownership reform to release their vitality, he said.

"Currently, the income structure of commercial banks still relies heavily on net interest margin. As this kind of business model is unsustainable, they must make greater efforts to increase their non-interest income, especially income from asset management and investment banking, which can be little affected by the current economic cycle," he said.

During the quarter under review, the report said the proportion of listed banks' net fee and commission income climbed to 23.29 percent from 20.49 percent last year, whereas the net interest income fell from 73.87 percent to 64.33 percent.

Splitting off certain business departments and establishing subsidiaries to operate as separate companies will also vitalize their profit-making ability and promote efficiency, Xu said.

jiangxueqing@chinadaily.com.cn