Chinese banks poised for better times thanks to rising interest income, analysts say
Morgan Stanley estimates that yields on new loans will rise by 60 basis points this year and next
Chinese banks could see poised for better days ahead amid improvements in interest income, as a regulatory crackdown on the shadow banking sector is forcing borrowers back to traditional banks, analysts said.
This will provide a welcome relief, particularly for the smaller and mid-sized banks, whose margins shrunk in 2015 and 2016 amid falling interest rates and moves by regulators to curb risky activities.
Interest income accounts for roughly 60 to 80 per cent of overall income at Chinese banks, although
the proportions may vary across different financial instititutions.
“This year we expect that yields on new loans will rise by about 60 basis points in 2018 and 2019, while interbank rates will rise much more slowly than they did last year,” said Richard Xu, head of China bank research at Morgan Stanley.
Consequently, net interest margins, the difference between the interest rate a bank earns on loans and that which it pays out in short-term borrowing costs as a proportion of its assets, will rise at almost all banks, according to Morgan Stanley’s estimates.
Among 17 large and mid-sized Chinese banks tracked, only Industrial Bank, which is listed on the Shanghai stock exchange, will likely see declines in its net interest margin in 2018, Morgan Stanley researchers said.
