Financials Author:Qing Lan Editor:Luke Sheehan Nov 10, 2020 12:01 AM (GMT+8)

Chinese banks have been gradually recovering from the pandemic.

Image credit: Macau Photo Agency/Unsplash

By end of October, all A-share listed banks released their third quarter financial results. These show that:

►...profitability has been recovering with the rebounds of the net income growths. 

►Most of the banks achieved positive asset growth during the nine-month period.

►The industry is still suffering from the consequences of the pandemic, with an increasing non-performing loan ratio, but several strong performers also exist. 

►The operations seem good as more retail clients started using banking services. 

Financials: Rebounding after the downturn

Actively fighting with the aftermath of the COVID-19 pandemic, banks in China are in a recovery period, with profitability significantly improved. Six state-owned banks, representing the trend of the entire industry, posted encouraging financial results during the third quarter of 2020, narrowing the negative net income growth and posting positive revenue increase. Among all the 51 public banks, 33 saw revenue numbers rise, with four of them surpassing 20%. 

China Merchants Bank, one of the largest city commercial banks in China, reported a 10.95% revenue increase in the retail business, took up 58.04% of the total figure. The net interest margin (NIM) rose month-over-month by 9 bps to 2.61% during the third quarter, led by the increased percentage of the high-return assets because of the recovery growth. The stricter cost control also contributed to better financials by improving the deposit structure. In the nine-month period, the non-interest income also ran up by 3.96%, took up 34.3% of the total revenue. 

Ping An Bank, a rising star in China's banking industry, posted a 13.2% growth in revenue during the first three quarters of 2020. Even though it significantly raised the standard for recognizing the non-performing loan and impairment losses, which caused a 5.2% decrease in the net income to be more conservative, the figure also narrowed from the first half of the year. The operating income before the recognition reported a 16.2% raise, and the non-interest net income ran up 12.9%, led by the fund and trust business.

China Minsheng Bank reported revenue of CNY 143.32 billion and NIM 2.14% with the improvement of 7.66% and 6 bps, respectively. The cost ratio was controlled by 0.59% down. 

The common increase in the impairment losses among the entire banking industry is expected to go down to push back the profitability, as the pandemic fades along with the state's fiscal income support. 

Assets: Increasing scale with improving quality

All of the 51 public banks reported expansions in asset scale, with 14 of the figures entered the double-digit territory. Most of them clustered in the region that has at least 8.4% growth during the nine-month period in 2020 and a positive increase in the third quarter. 

Among them, Ping An Bank led the industry in the single quarter from June to September, while China Construction Bank represents the top level of the state-owned banks with an overall highest growth from January to September. 

The expanding asset scale, which mainly led by the increasing loan outstanding, also pushed their non-performing loan (NPL) up. Though banks are still suffering from the credit issue caused by the pandemic, things are getting better. City commercial banks performed better than the state-owned ones, with several of them controlled the NPL ratio down. 

Among them, Ping An Bank improved the NPL ratio by 0.33%, leading the entire industry. Its NPL balance also went down by 11% compared to the end of 2019. 

China Merchants Bank also achieved an improvement on low-quality loans, with the NPL ratio by 0.04%, the balance of loans past due decreased by 0.75%. 

China Minsheng Bank experienced some trouble in 2020. Not only reflected as the shrinking asset scale, but its asset quality is also getting worse with the NPL ratio ran up by 0.27%, which is considered the top-level among all public banks.

In general, we can see the banking industry in China has been gradually recovering from the downturn.

Operation: decreasing unbanked population 

With disposable income rising in China, more of the population has been using banking services, especially for private banking and high-end services. It can be seen reflected in the operating results from two retail giants, China Merchants Bank (CMB) and Ping An Bank (PAB). 

For CMB, the pioneer of the retail banking service provider, had its individual clients increased 7.65% in the nine-month period, among which the high-end clients, named 'Golden Sunflower' (Chinese: 金葵花), with daily investment assets over CNY 500,000 ran up by 13.80%. The asset under management (AUM) of Golden Sunflower customers rose by 16.40%, surpassed the growth of the number of clients, marks a per capita incremental expenditure on banking services. The AUM of its private bank also went up by 19.15%. 

For PAB, the year 2020 is the inception of its new operation strategy, to further deploy in the retail business, and to continue to increase risk management, and build a banking ecosystem. The total AUM grew by 25.5% by September 30 compared to the end of 2019. The client base in the private banking sector reached a growth of 26.3% in the nine-month period, and the AUM in the sector surged by 43%. In the future, it aims to reach CNY 2 trillion on the AUM of the private bank in two years.

The Bottom 

To sum up, some banks have indeed recovered fast from the adverse impacts of the pandemic, but in general, the performance of the banking industry is keeping up with market expectations.