Over the last few decades, the Chinese Central Bank has accumulated massive foreign exchange reserves making it the world’s largest holder at $3.44 trillion. Furthermore the expansion of these reserves, which has accelerated dramatically since 2000, has shown no signs of slowing. Figure one shows foreign reserve levels in China compared with Japan, the world’s second largest holder, along with the United States. Figure two shows the trajectory of China’s foreign reserve levels over the last three decades, which is now over 300 times larger than in 1980.
China’s Central Bank has been rapidly shifting towards full interest rate liberalization. On July 20th, 2013, The People’s Bank of China (PBOC) announced liberalizing the loan interest rate. With this announcement, the deposit interest rate ceiling is the last variable waiting to be liberalized in China.
With interest rates liberalization now on the horizon, competition in deposit interest rates is heating up. Many joint-stock banks have recently increased their long term deposit interest rates about 10%. Everbright Bank increased its 2-year term deposit interest rate from 3.75% to 4.125%, 3-year term deposit interest rate from 4.25% to 4.675%, and 5-year term deposit interest rate from 4.75% to 5.125%. It will be effective until the end of 2013. Since 2012, many city commercial banks have increased their deposit interest rate. We can see the interest rate liberalization trend, and it is currently affecting China’s banking sector from local banks to joint-stock banks, and maybe state-owned banks in the near future.
In respond to Chinese national policy, Chinese banks have been actively advancing and cooperating with small and micro-enterprises in the lending business. The total small and micro-enterprise loan balance keeps climbing, and the proportion of small and micro-enterprise loan to total corporate loan remains on a stable level. Recently, the small and micro-enterprise loan balance reached to 12.25 trillion Yuan, and 28.6% of corporate loan belongs to small and micro-enterprises. The increase in small and micro-enterprise loan not only effectively relieves the constraint of funding issues for the companies, but also promotes the transformation of small and micro enterprises in China.
Considered one of the best retail banks in China, China Merchant Bank (CMB) has started their private banking business in 2007. At the end of 2012, CMB's pre-tax profit from their private banking business reached 2.3 billion yuan. Other major banks in China have similarly increased their wealth management profit since 2010, when growth of the market really accelerated.
ICBC and BOC still have the largest private banking AUM among the top 5 while CMB has the most private banking centers to serve its HNWI customers. The high net worth customer segment (over 10M RMB in investable assets) is growing at 18% growth rate and reached to 700,000 by the end of 2012. It seems that banks have finally cracked the code and wealth management is set to grow in China.
As part of Kapronasia's continuing webinar series, our next webinar on July 10th will be looking at Operational Risk Management in China's banking system. Given the events of recent weeks, risk management is once again key consideration for Chinese banks. To register for the webinar, please click here.
With the liquidity crunch increasing in June and the interbank rate jumping to new highs, many state-owned banks are attempting to use the increased average wealth management product (WMP) yield to ease the tightened liquidity. Based on data from JRJ, the average monthly WMP yields in major state-owned banks increased in June compared to May based on the monthly average yields of the top 10 WMP in the bank. The average yields increased from 3.84% to 4.38% in the Industrial and Commercial Bank of China (ICBC), 4.16% to 4.57% in the Bank of China (BOC), 3.77% to 4.11% in the Agricultural Bank of China (ABC), and 3.58% to 4.44% in China Construction Bank (CCB).
We mentioned earlier this week that there had been a sharp uptick in the Shanghai Interbank rate in the past month. This peaked last night at about 13%. With the attention, rightly so, that this is getting, it's worth taking a look at the issue and what's involved.
According to data released by the People’s Bank of China (PBOC), the interbank lending rate (weighted average interest rate) increased from 2.55% in April 2013 to 2.92% in May which will affect banking liquidity requirements. The interbank lending rate decreased from 2.77% to 2.47% in March, and it started to increase in April and May. The interbank lending rate in May is 0.42% higher year on year. The total interbank lending turnover was 21.85 trillion yuan, and the daily turnover reached 993 billion yuan.
Based on data released from the PBOC, bank card issuance in Q1 has increased 4.5% compared to 2012 Q4 to reach a total of 3.69 billion cards issued. Within the issued 3.69 billion cards, the total number of debit cards issued was 3.65 billion and total credit card issuance reached to 0.34 billion. From Q1 2012, the issued bank cards have had a steady growing trend which indicates that bank cards have becoming more and more Important as a payment method in China. Domestically, 10.6 billion bank card transactions happened in Q1 2013, and the total transaction value was 100.27 trillion yuan which increased 23.9% and 19.3% compared to Q1 2012.
According to the annual reports released by city commercial banks, a lot of city commercial banks’ net profit growth rates in 2012 have shown a slowing down trend compared to 2011. For example, in 2011, both net profit growth rates of Hankou Bank and Bank of Chengdu were close to 50%, however, both of them shown a dramatic decrease as the end of 2012. Also, the net profit growth of the two listed city commercial banks - Bank of Nanjing and Bank of Ningbo, are showing a significant decline in 2012.
Lower net profit is putting a lot of pressure to Chinese commercial banks in 2013, and the figures implies that city commercial banks have to seek for new business and products to reboot high profit in 2013.
As the end of 2012, the total number of Chinese online banking registered users reached about 489 million. More specifically, according to the data released from Cebnet, CCB’s online banking customers increased to 119.26 million, jumping by 41% from 2011 to 2012. The number of BOC’s online banking customers has reached to 91.42 million, with a year-on-year growth rate of 66%.
Because of the dramatic increase in the number of online banking users, banks such as ICBC and CCB have launched more innovative personal banking services such as social insurance and wealth management services.
According to the CBRC, China’s commercial banks announced a total net profit of 1.24 trillion RMB in 2012, with the total net profit of the 16 listed banks comprising 1.03 trillion of that total. Among these 16 listed banks, the five major banks ICBC, ABC, BOC, CCB, and BOCom earned 239, 145, 139, 194, and 58 billion RMB respectively in 2012. China Merchants Bank (CMB) made 45.3 billion RMB net profit in 2012, topping other joint-stock banks. Bank of Beijing, as the leading city commercial bank in China, earned 11.7 billion RMB net profit last year. However, the overall net profit growth rate of China’s commercial banks has declined compared to 2011 apparently due to the process of interest marketization which has deceased interest based revenue recently.
According to the China Securities Journal, the quality of credit assets is again appearing as an issue for Chinese banks. The latest annual report shows that the non-performing loan (NPL) balance and non-performing loan (NPL) ratio both increased in 2012, a sharp move from the “double decreasing” in both NPL balance and NPL ratio in the previous years.
The total NPL balance in the 11 listed banks was ¥385.38 billion in 2012 with a YOY growth rate of 8.1% compared to ¥356.6 billion in 2011. China Construction Bank believes the upward trend in NPL is due to the macroeconomic fluctuations in manufacturing, wholesale and retail trade, and real estate.