Analysis | China’s major banks look to non-interest income for growth as rates liberalisation crimps profit margins
Mounting bad debt among corporate clients and the slowest economic growth in decades forces sector heavyweights to diversify their income streams
China’s largest banks must look to non-interest income to bolster their earnings in future, after the central bank’s move last October to change the way interest rates are set squashed profit margins between lending and deposit rates.
Three of the country’s five largest banks have already reported first-half profit growth of between half a percentage point and 1.3 per cent, all weighed down by dwindling net interest income.
Agricultural Bank of China, operator of the country’s biggest network of bank branches, posted a 9.4 per cent decline in first-half net interest income to 198.86 billion yuan. China Construction Bank’s income from interest rates fell 6.1 per cent to 219.99 billion yuan while Shanghai-based Bank of Communications’ interest income fell 4.1 per cent to 68.1 billion yuan.
“The state-owned banks have enjoyed a golden decade in the past 10 years,” said Ma Kunpeng, head of financials research at China Merchants Securities, before adding he thinks those days are largely over.
Faced with bad loans, withering industries and the slowest economic growth pace in decades, China’s banks need to diversify their income sources, integrate their businesses and adopt the universal banking model, Ma said.
The three banks that have already reported interim results have all turned to fees and commissions to drive their growth.
