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.
According to CCW Research, a local Chinese IT market research company, China’s financial industry IT software spend in 2012 grew to 49 billion RMB and the spending will keep a steady growth in 2013. Banking segment spend is a key driver, making up about 72% of total spend. Comprehensive risk management and big data are the main IT focus areas for banks.
As securities companies continuously launch new business, CCW estimates that IT spending on new business-related solutions in the securities sub-segment will increase considerably in future.
For insurance companies, the overall IT infrastructure is still very nascent. Large players will invest more money into the development and update of core systems.
So we’ve just come out of the October holiday here in China and are headed in the final frantic few months before Chinese New Year. The difference this year is the early November once in a decade leadership transition where nearly every Chinese leader and politician will be replaced and/or shifted around in China’s Communist Party. It was never in doubt that the transition would happen towards the end of this year, but it was only in the last few weeks that it became clear it would happen in early November.
This is an important transition for the government and only the second peaceful transition of power in recent China’s recent history. The transition is even more important because of the critical social and economic challenges that the country is facing right now. A slow/stagnant world economy and increased but still limited domestic consumption is limiting China’s economy as a whole which is exacerbating the internal challenges it is facing – one of the most critical being the increasing delta between the haves and have nots. If you have been reading international media recently, we’re starting to see more and more of this discrepancy being uncovered and it does nothing to help the government in the eyes of the people.
More specifically to the financial industry however, the transition means increased change. We’ve seen this already this year especially in the capital markets as the new chief regulators have done quite a bit to open the capital markets this year with increased rumours that regulation on the RFQLP programme should be announced shortly, adding yet another channel for off-shore RMB to come back into China’s mainland markets.
The shift in policy is also indicative of China’s increased awareness of money leaving China. With reports of both wealthy individuals and corporations legally and illegally sending money abroad, the issue which used to be too much hot money coming in, is now too much hot money going out. To a certain extent, this is a bit of a blessing in disguise for China as it will allow regulators to further open the market without risking the hot money inflows – which was viewed as a challenge in the past.
With the party congress set for November of this year, we’re unlikely to see too much more change until after Chinese New Year (Feb 2013). What we should be able to quickly determine though is how open the new leaders are to change and modernization of all industries, not just the financial services industry. As we’ve discussed on our blog before, this will largely depend on how quickly the new leaders can consolidate their power to be able to effect change and in which direction they decide to go.
Regardless, 2013 will be a new watershed for China’s financial services industry. Stay tuned early next year for our 2013 top financial technology trends report to see how we see things changing.
According to the latest semiannual reports issued by China’s commercial banks, e-banking continues to grow in importance as a part of banks’ business. For most of banks, e-banking channels has already contributed to over 60% of total transaction volume with the 5 large commercial banks’ total e-banking transactions showing a 35% growth rate year on year. Benefiting from the advancement of IT and the proliferation of smart mobile phone in China, mobile banking has become increasingly convenient for users and important for banks.
In order to meet the strong demand for mobile banking, banks continue to update their mobile banking applications and launch new functions to enhance the user experience. For instance, Agricultural Bank released its new iPhone-enabled mobile banking app which not only supports banking transactions but also integrates online shopping. Bank of China launched the first Windows-enabled mobile banking application recently. We expect that in the future banks will offer more value-added services on their mobile banking products through innovations and ensure safe and reliable systems.
In 2013, China will take over Japan as the biggest consumer of IT products in Asia. According to IDC, China's total IT market size in 2012 is projected to reach 155 billion US dollars, with 20% growth rate YOY, and in 2013, this number will reach 170 billion dollars, 4% more than that of Japan. During China's Five Year Plan period (from 2011 to 2015), companies must invest more in their IT infrastructure to meet the demands of stable growth and innovations.
In the banking industry, total IT spending (software and services) in 2011 exceeded 15 billion US dollars, with a 19% growth rate compared to 2010, and, according to IDC, China's banking IT spending will keep a 20% CAGR (Compound Average Growth Rate), hitting 39 billion dollars in 2016. We expect that the new generation of core banking systems, risk control, big data analysis and mobile payment will be the main driving forces behind the IT spend.
The Banking on China report is now available on the Kapronasia website in the research reports section. The report from Oracle and Kapronasia looks at the key challenges and opportunities for international banks in China and is based on numerous interviews with both larger and smaller banks in China. The complimentary report is available for download after you have logged into your Kapronasia.com user account. If you do not have an account, register today for free.
In recent years, Chinese banking sector profits have skyrocketed to new levels, in part due to the Beijing imposed ceiling on the rates banks pay depositors, providing banks with a source of cheap funds, which banks then in turn lend out at much higher rates. Net profits for commercial banks grew 36 percent last year, reaching 1 trillion Renminbi. Chinese banks are enjoying year-on-year rises of more than 30 percent in their first-half net profits. In one example, the Industrial and Commercial Bank of China’s fees and commission income for the year 2011 was close to 100 billion RMB, compared to 72 billion in 2010 and 55 billion in 2009.
Since the first QDII quota of US$500 million was allocated to the HuaAn fund in 2006, the quota allocated to security companies and fund companies has maintained steady growth. As of the end of February 2012, US$44.4 billion of investment quota was allocated to fund companies and security companies, compared to US$44.4 billion and US$40.6 billion for 2011 and 2010.