Comparing annual profits, 10 out of the top 15 Chinese firms are banks. Moreover, among the top 20 companies in China based on profit margin, only five of them are not banks.
It was a surprising result as banks are facing many challenges globally. In China, the booming fintech industry has taken business away from traditional banks and the net interest margin was decreasing until recently, which brought more pressure on banks’ profitability. However, these issues have been addressed well by Chinese banks.
When fintech products such as Alipay appeared in the market, the market expected a war between fintech firms and banks. Indeed, fintech firms like Ant Financial have brought many disruptions towards the banking industry in China. However, more and more fintech firms have hit their limits and started to cooperate with banks. Ant Financial has announced the future plan to service financial institutions as a technology provider which is probably the best choice for fintech firms to focus on what they are good at. A less competitive relationship created more opportunities for banks to develop new business. They have improved their traditional banking services with better technology and have developed new business such as online lending and direct banking, which will create more profits and future growth.
Besides banks’ self-improvement, the Chinese market has been robust. First of all, since last year, net interest margin in China has started growing again. It is an indicator of growing strength for banks. Secondly, as China lifted restrictions on foreign investment into the financial industry in April, stable and consistent profits will attract more foreign capital and investment into the Chinese banking industry. Finally, the Chinese government just announced more expansionary policies for the second half of 2018. For example, the newly issued asset management policy has given financial institutions more time and flexibility to break their high-leverage financial instruments. Banks are already benefiting from these policies.
As banks continue to improve their already high profitability, their influence is also increasing outside of China. The “big four” state owned banks are leading the expansion. The Agricultural Bank of China has just launched its London branch in June. ICBC also received their banking license in Switzerland earlier this year. In Australia, Chinese banks are gaining market share by joining syndicated loans with Japanese banks. Showing better results than any other sectors, Chinese banks are back on the main stage and their growth may continue in the future.