banking newsletter - pwc · the banking newsletter, pwc’s analysis of china’s listed banks and...

www.pwccn.com

Banking NewsletterReview and Outlook of China’s Banking Industry in 2017

April 2018

Editorial Team

Advisory Board

Jimmy Leung, Margarita Ho, Richard Zhu, Michael Hu, Vincent Yao, James Tam, Raymond Poon

Editor-in-Chief：Linda Yip

Deputy Editor-in-Chief：Jeff Deng

Members of the editorial team：

Ariel Liu, Luna Liu, David Li, Sophia Shu, Daisy Wu

(in alphabetical order of last names)

The Banking Newsletter, PwC’s analysis of China’s listed banks and the wider industry, is now in its 34th edition. This analysis covers 34 A-share and/or H-share listed banks that have released their 2017 annual results as of 24 April 2018. According to their size and business characteristics, those banks are categorized into following three groups:

Preface

The total assets of these banks, as of 31 December 2017, accounted for 78.91% of the total assets of China’s commercial banking sector. Unless otherwise stated, all the information in this newsletter comes from publicly available sources. All amounts are in RMB except for ratios.

For more information, please talk to your PwC contacts or any of those listed in the Appendix as Banking and Capital Markets Contacts.

Large Commercial Banks (6)

Industrial and Commercial Bank of China (ICBC)

China Construction Bank (CCB)

Agricultural Bank of China (ABC)

Bank of China (BOC)

Bank of Communications (BOCOM)

Postal Savings Bank of China (PSBC)

Joint-stock Commercial Banks (8)

China Industrial Bank (CIB)

China Merchants Bank (CMB)

China MinshengBank Corporation (CMBC)

China CITIC Bank (CITIC)

China EverbrightBank (CEB)

Ping An Bank (PAB)

HuaxiaBank (HXB)

China ZheshangBank (CZB)

Rural & City Commercial Banks (20)

Bank of Shanghai (Shanghai)

Bank of Jiangsu (Jiangsu)

Bank of Ningbo (Ningbo)

ShengjingBank (Shengjing)

HuishangBank (Huishang)

Bank of Jinzhou (Jinzhou)

Bank of Tianjin (Tianjin)

Harbin Bank (Harbin)

ZhongyuanBank (Zhongyuan)

Bank of Zhengzhou (Zhengzhou)

Bank of Chongqing (Chongqing)

Bank of Qingdao (Qingdao)

Bank of Gansu (Gansu)

Chongqing Rural Commercial Bank (Chongqing RCB)

Guangzhou Rural Commercial Bank (Guangzhou RCB)

Jiutai Rural Commercial Bank (Jiutai RCB)

Changshu Rural Commercial Bank (Changshu RCB)

Wuxi Rural Commercial Bank (Wuxi RCB)

Jiangyin Rural Commercial Bank (Jiangyin RCB)

Zhangjiagang Rural Commercial Bank (Zhangjiagang RCB)

Table of Contents

1 Macro overview 05

2 Listed Banks’ Result Analysis 11

2.1 Large Commercial Banks 13

2.2 Joint-stock Commercial Banks 23

2.3 Rural & City Commercial Banks 33

3 Features 43

3.1 Banks’ wealth management business is set to transform under the New AM Regulations

45

3.2 Addressing shadow banking risks to ensure banks’ ongoing stability

47

3.3 Leveraging New Provision Regulations to enhance risk management

49

3.4 Quantifying the implications of new financial instrument reporting standards (IFRS 9)

52

4 Appendix 55

Macro Overview

• China recorded higher GDP growth for the first time in 4 years

• Lower M2 growth indicates improved fund flows in the financial system

• Tougher regulation to prevent financial risks

• Overseas direct investment slumped

PwC

China recorded higher GDP growth for the first time in 4 years

There’s synchronized growth across the world in 2017 for the first time since the financial crisis. According to the IMF, global GDP grew 3.70% in 2017, 0.50 percentage points higher than that of 2016.

Benefitting from a favourable external environment, China recorded strong GDP growth 6.90% in 2017, 0.20 percentage points higher than in 2016 following a downward growth trend in past three years.

Contribution to growth from net export firmed to 9.10%, reversing last two years’ drop. Consumption has become the main driver of growth, contributing 58.80%. Contribution from investment was 32.10%.

Consumer Price Index (CPI) remained stable in 2017, exhibiting 1.60% growth, 0.40 percentage points lower than in 2016. Producer Price Index (PPI) rose 6.30%, putting an end to year years’ consecutive decline.

9.50%

7.70% 7.80%7.30%

6.90% 6.70% 6.90%

2011 2012 2013 2014 2015 2016 2017

Steady GDP growth

Source: National Bureau of Statistics

China real GDP grew by 6.90% in 2017, the first pickup in 4 years

Figure 1

Banking Newsletter April 20187

PwC

Lower M2 growth indicates improved fund flows in the financial system

Money supply decelerated amid continued deleveraging and tougher financial regulations, with M2 growing 8.20% in 2017, the lowest growth in recent years.

However, social financing growth was resilient and stood at around 12.00%, consistent with the full year target. Credit continued to expand rapidly, with RMB loan growing 12.70%. The amount of new loan was 13.53 trillion, higher than 2016.

The divergence of M2 and social financing growth in 2017 indicates financing demand from real economy wasn’t impacted by the deleveraging. Deceleration of M2 growth reflects an improvement in fund flows - funds that circulated within the financial system with embedded structures were channelled to the real economy, the chains of fund flow were also shorten.

Social financing growth YOY, 2017.12, 12.00%

Monthly M2 growth YOY, 2017.12, 8.20%

0%

2%

4%

6%

8%

10%

12%

14%

Falling M2 growth

Source: PBoC

M2 growth fell to 8.20% in December, significantly lower than social financial growth

Figure 2

April 2018Banking Newsletter8

PwC

Tougher regulation to prevent financial risks

“Regulation” and “risk prevention” were among the key words in financial sector in 2017. Since Q1 2017 the CBRC began taking serious measures to tackle irregularities in the banking sector, a series of inspections commonly referred to as “three, three, four, ten” (three types of violations, three types of arbitrages, four types of improper conducts, and ten types of malpractices), targeting inter-bank activities and wealth management business. China’s top decision making meetings in 2017, including the 19th Party Congress, Central Financial Work Conference, Central Economic Work Conference, reiterated the importance of preventing and mitigating financial risks.

Bond yields, such as government bond yields, rose amid tougher regulation in 2017.

In 1Q 2018, the merge of banking and insurance regulatory bodies was a step towards closer coordination with the regulatory framework. Under the fine tuned framework, the PBoC will take on the role of regulation drafting and macro prudential regulation, while the merged banking and insurance regulatory body will focus on enforcement.

Figure 3

3.35%

3.88%

3.04%

3.84%

2.68%

3.79%

Interest rates on the rise

10-year

5-year

1-year

Government bond yields rose amid tougher regulation, with shorter maturity yields rising more than longer term ones

Source: PBoC


PwC

Overseas direct investment slumped

To mitigate financial risks and reduce volatility of cross-boarder capital flows, Chinese authorities imposed several measures to contain the private sector’s "irrational" overseas investments. As a result, non-financial overseas direct investment (ODI) dropped by 29.40% to USD 120 billion. On the other hand, non-financial FDI increased by 7.90% to USD 131 billion.

Expectation on RMB depreciation was high at the beginning of 2017, which turned out to be just expectation. RMB against a basket of currencies remained stable, with China Foreign Exchange Trade System (CFETS) Index rose 0.02% for the whole year.

Resilient RMB indicates that the concern on China’s economic downturn has eased due to supply side structural reform measures, such as cutting excess capacity, reducing inventories, lowering borrowing costs, deleveraging and tackling weakness.

Figure 4

90103

118

170

120

16.77%14.11% 14.71%

44.14%

-29.41%

2013 2014 2015 2016 2017

ODI slumped

Non-financialODI (in billions)

YOY growth

Source: Ministry of Commerce

Non-financial ODIs decreased nearly 30% as a result of policy tightening on irrational outbound investment


Large Commercial Banks

• Net profit growth improving, but profitability indicators still under pressure

• Total assets reached over 100 trillion despite a slower growth

• Credit asset quality improved

Joint-stock Commercial Banks

• The disparity in net profit growth increases

• Encouraging signs emerged for credit asset quality

• Pressure in common equity tier 1 capital

Rural & City Commercial Banks

• Net profit growth slowed, with volatility among individual banks

• Credit asset quality improved

• Common equity tier 1 CAR went down

Listed Banks’ Results Analysis

Large Commercial Banks in 2017 – a snapshot

Operating performance Credit asset quality

Financial position

Net Profit

Net profit growth in last 5 years

Return on total assets Return on equity

Net interest income

Net interest spread Net interest margin

Total assets Total liabilities

Assets growth in last 5 years Liabilities growth in last 5 yearsProvision coverage ratio in last 5 years

Provision ratio in last 5 years

NPL in last 5 years Overdue loans in last 5 years

NPL ratio Overdue loans ratio

Non-performing loans Overdue loans

Provision ratioProvision coverage ratio

Overdue loans ratioNPL ratio

NPL ratio vs overdue loans ratio

90 day or above overdue loan ratio

NPL ratio

NPL ratio vs 90 day or above overdue loan ratio

Special mention loan ratioSpecial mention loans

Cost-to-income ratio Business & administration expenses

1.00%-0.05 ppts

13.79%-0.61 ppts

1.93%-0.07 ppts

2.04%-0.08 ppts

30.71%-0.39 ppts

856.57 billion

YOY 3.82%

1.51%-0.15 ppts

1.78%-0.45 ppts

859.95 billion

3.93 billion

1,012.89 billion

-137.75 billion

1,750.67 billion

-6.41 billion

3.08%-0.32 ppts

176.40%17.35%

2.67%0.03 ppts

106.78 trillion

YOY 7.33%

98.73 trillion

YOY 7.17%

2,070.33 billion

YOY 9.76%

472.31 billion

YOY -3.88%

YOY 4.10%1,027.59 billion

2.79%2.78%

2.75%

2.64%

2.67%

Note: “ppts” refers to percentage points

billion

859.95856.02

765.34

518.15381.98

billion

1,012.891,150.64

1,102.26

733.07

464.02

Net fee & commission income

PwC

2.1 Large Commercial Banks

Net profit growth improving, but profitability indicators still under pressure

Six large commercial banks covered in this newsletter generated an aggregate net profit of 1.03 trillion in 2017, increased by 4.10%. The growth was higher than that in 2016 (1.92%).

Most of those banks saw net profit growth improving in 2017, due to the growth in net interest income.

That said, their profitability indicators, i.e. return on total assets (RoA) and return on equity (RoE), fell in 2017 for most banks, suggesting their profitability pressure is still there.

Net profit growth rebounded for most banksMost large commercial banks saw higher net profit growth in 2017 than 2016

(In billions)

ICBC 287.45

CCB 243.62

ABC 193.13

BOC 184.99

BOCOM 70.69

PSBC 47.71

2.99%

4.83%

4.93%

0.51%

4.39%

19.94%

0.50%

1.53%

1.82%

2.58%

1.23%

14.11%

2017 vs 2016

2016 vs 2015

Figure 5

Return on total assets (RoA)

Return on equity (RoE)

2016 2017 2016 2017

ICBC 1.20% 1.14% 15.24% 14.35%

CCB 1.18% 1.13% 15.44% 14.80%

ABC 0.99% 0.95% 15.14% 14.57%

BOC 1.05% 0.98% 12.58% 12.24%

BOCOM 0.87% 0.81% 12.22% 11.40%

PSBC 0.51% 0.55% 12.88% 13.07%

April 2018Banking Newsletter

13

PwCApril 2018Banking Newsletter

14

Interest income increased steadily, whereas fee & commission income presented an opposite picture

Expansion of interest generating assets, especially loans, drove six large commercial banks’ net interest income to increase steadily. Aggregate net interest income of those banks increased by 9.76% in 2017 to 2.07 trillion.

On the other hand, fee and commission income of those banks presented an opposite picture - the aggregate amount in 2017 decreased by 3.88% to 472.31 billion. According to those banks, this was due to their avocations to the government’s calling of fee waving, as well as the drop in product supply from insurance companies through bank channel as a result of tighter regulation on insurance sector.


Figure 6

Fee & commission income under pressure

10.65%

8.30%

11.01%

10.57%

-5.56%

19.37%

-3.69%

-0.60%

-19.83%

0.03%

10.21%

10.78%

ICBC

CCB

ABC

BOC

BOCOM

PSBC

Net interest income

Fee & commission income

Net interest income for six large commercial banks increased steadily in 2017, whereas fees and commission income presented an opposite picture


15

NIS and NIM rebounded slightly

As market interest rates rise, net interest spread (NIS) and net interest margin (NIM) for six large commercial banks rebounded slightly, indicating the pressure was eased.

This is largely due to their stable and low funding costs on liability side, which maintained cost on interest-paying liabilities at a flat or lower level.


NIS 2013 2014 2015 2016 2017

ICBC 2.41% 2.46% 2.30% 2.03% 2.10%

CCB 2.57% 2.62% 2.47% 2.07% 2.09%

ABC 2.64% 2.76% 2.49% 2.11% 2.16%

BOC 2.01% 2.13% 1.97% 1.69% 1.70%

BOCOM 2.33% 2.17% 2.06% 1.75% 1.44%

PSBC 2.66% 2.87% 2.71% 2.34% 2.46%

Figure 7

2.57%2.65%

2.48%

2.10% 2.11%2.42% 2.49%

2.32%

1.98% 2.00%

2013 2014 2015 2016 2017

NIM

NIS

NIS and NIM rebounded slightly, following consecutive drops in 2015 and 2016

NIS and NIM rebounded slightly

NIM 2013 2014 2015 2016 2017

ICBC 2.57% 2.66% 2.47% 2.16% 2.22%

CCB 2.74% 2.80% 2.63% 2.20% 2.21%

ABC 2.79% 2.92% 2.66% 2.25% 2.28%

BOC 2.13% 2.25% 2.12% 1.83% 1.84%

BOCOM 2.52% 2.36% 2.22% 1.88% 1.58%

PSBC 2.67% 2.92% 2.78% 2.24% 2.40%


16

Total assets reached over 100 trillion despite a slower growth

By the end of 2017, total assets of six large commercial banks reached over 100 trillion for the first time, at 106.78 trillion, 7.33% more than that at the end of 2016. The growth was slower than in 2016 (11.01%). All six banks saw slower assets growth.

Figure 8


Asset growth slowed across the boardAll six banks saw slower assets growth in 2017 than in 2016

(In trillions)

ICBC 26.09

CCB 22.12

ABC 21.05

BOC 19.47

BOCOM 9.04

PSBC 9.01

8.08%

5.54%

7.58%

7.27%

7.56%

9.04%

8.68%

14.25%

10.00%

7.93%

17.44%

13.28%

2017 vs 2016

2016 vs 2015


17

Loans and financial investments continued to grow, whereas interbank assets showed a mix picture

Among various components of the assets of six large commercial banks, loans and financial investments continued to grow in 2017, whereas interbank assets showed a mixed picture.

Those banks continued to adjusted their loan mix in 2017, by increasing medium to long term loans and reducing discounted bills. By customer groups, retail loans grew fast than corporate loans in their portfolio.

As for financial investment portfolio, most banks’ financial assets measured at fair value through profit and loss, and held-to-maturity assets recorded faster growth.


Figure 9

8.82%

9.45%

10.70%

9.33%

8.62%

20.49%

5.03%

2.23%

15.36%

14.65%

9.24%

-8.57%

18.10%

-17.46%

-22.98%

-9.86%

9.32%

70.68%

ICBC

CCB

ABC

BOC

BOCOM

PSBC

Credit continued to expand

Loans and advances

Financial investments

Interbank assets

Six large commercial banks’ loans and financial investments continued to grow in 2017, while interbank assets’ growth varied


18

Credit asset quality improved

Credit asset quality of six large commercial banks improved in 2017, with non-performing loans (NPLs) growing slightly by 0.46% to 859.95 billion.

Not only NPL ratio continued to fell, other indicators such as special mention loans ratio, overdue loan ratio and past-due-but-not-impaired loan ratio of those banks all went down.

1.22%

1.73%

2.36%2.23%

1.78%

1.00%

1.22%

1.64%

1.66%1.51%

0.33%

0.60%

0.83%

0.69%

0.47%

2013 2014 2015 2016 2017

Credit asset quality pressure eased

Overdue loans ratio

NPL ratio

Past-due-but-not-impaired loans ratio

NPL ratio, overdue loan ratio and past-due-but-not-impaired loan ratio of six large commercial banks all fell for the first time in years

Figure 10


NPL Ratio 2013 2014 2015 2016 2017

ICBC 0.94% 1.13% 1.50% 1.62% 1.55%

CCB 0.99% 1.19% 1.58% 1.52% 1.49%

ABC 1.22% 1.54% 2.39% 2.37% 1.81%

BOC 0.96% 1.18% 1.43% 1.46% 1.45%

BOCOM 1.05% 1.25% 1.51% 1.52% 1.50%

PSBC 0.51% 0.64% 0.80% 0.87% 0.75%

Overdue loan ratio 2013 2014 2015 2016 2017

ICBC 1.35% 1.91% 2.79% 2.65% 2.01%

CCB 1.01% 1.41% 1.65% 1.51% 1.29%

ABC 1.39% 2.06% 3.14% 2.83% 2.09%

BOC 1.16% 1.48% 1.96% 2.15% 1.86%

BOCOM 1.41% 2.37% 3.04% 2.64% 2.22%

PSBC 0.60% 0.82% 0.99% 0.96% 0.97%

Past-due-but-not-impaired loan ratio

2013 2014 2015 2016 2017

ICBC 0.44% 0.79% 1.29% 1.06% 0.56%CCB 0.17% 0.34% 0.30% 0.27% 0.24%ABC 0.34% 0.61% 0.83% 0.57% 0.52%BOC 0.34% 0.49% 0.69% 0.77% 0.52%

BOCOM 0.44% 1.15% 1.55% 1.13% 0.74%PSBC 0.10% 0.21% 0.22% 0.17% 0.28%

PwC

Continued to dispose outstanding NPLs

The improvement of six large commercial banks’ credit asset quality was largely the result of continued efforts in disposing outstanding NPLs.

Total write-offs and transfer-outs of those banks amounted to 327.77 billion in 2017, 5.07% more than that in 2016. Such amount accounted for nearly 40% of their total NPL balance.


Figure 11

382

518

765

856 860

66

151

262 312 328

2013 2014 2015 2016 2017

NPL balances Write-offs and transfer-outs

While NPL balances flattened out in 2017, write-offs & transfer-outs continued to increase

(In billions)

Continued efforts in NPL disposal


As of 31 Dec 2017, in billions

NPL balances

Write-offs&transfer-outs

Write-offs & transfer-outs as % of NPL

ICBC 220.99 72.20 32.67%

CCB 192.29 64.47 33.53%

ABC 194.03 94.29 48.60%

BOC 158.47 70.34 44.39%

BOCOM 66.90 19.97 29.85%

PSBC 27.27 6.50 23.82%

Total 859.95 327.77 38.12%

PwC

Total liabilities growth slowed with new type of liabilities growing fast

By the end of 2017, total liabilities of six large commercial banks increased by 7.71% to 98.73 trillion. The growth slowed in 2017.

Among various components of liabilities, customer deposits increased at a faster pace and remained as the major source of funding. Debt securities issued, mostly are new types of liabilities, including tier 2 capital bonds, certificates of deposit, interbank negotiable certificates of deposit and financial bonds, continued to grow rapidly.


Figure 12

Liabilities growth slowedLiabilities growth of six large commercial banks in 2017 was slower than 2016

(In trillions)

ICBC 23.95

CCB 20.33

ABC 19.62

BOC 17.89

BOCOM 8.36

PSBC 8.58

8.08%

4.93%

7.54%

7.38%

7.61%

8.37%

8.56%

14.61%

10.07%

7.79%

17.43%

12.71%

2017 vs 2016

2016 vs 2015



21

Common equity tier 1 capital under pressure

Six large commercial banks actively issued preferred stocks and tier 2 capital bonds in 2017 to strengthen their capital base amid expansion of risk assets. These activities helped to boost tier 1 capital adequacy ratios (CAR) and total CAR.

However, some banks saw their common equity tier 1 CAR fell, reflecting such capital were under pressure.


Common equity tier 1 CAR

2013 2014 2015 2016 2017

ICBC 10.57% 11.92% 12.87% 12.87% 12.77%

CCB 10.75% 12.12% 13.13% 12.98% 13.09%

ABC 9.25% 9.09% 10.24% 10.38% 10.63%

BOC 9.69% 10.61% 11.10% 11.37% 11.15%

BOCOM 9.76% 11.30% 11.14% 11.00% 10.79%

PSBC 7.72% 8.44% 8.53% 8.63% 8.60%

Tier 1 CAR 2013 2014 2015 2016 2017

ICBC 10.57% 12.19% 13.48% 13.42% 13.27%

CCB 10.75% 12.12% 13.32% 13.15% 13.71%

ABC 9.25% 9.46% 10.96% 11.06% 11.26%

BOC 9.70% 11.35% 12.07% 12.28% 12.02%

BOCOM 9.76% 11.30% 11.46% 12.16% 11.86%

PSBC 7.72% 8.44% 8.53% 8.63% 9.67%

Total CAR 2013 2014 2015 2016 2017

ICBC 13.12% 14.53% 15.22% 14.61% 15.14%

CCB 13.34% 14.87% 15.39% 14.94% 15.50%

ABC 11.86% 12.82% 13.40% 13.04% 13.74%

BOC 12.46% 13.87% 14.06% 14.28% 14.19%

BOCOM 12.08% 14.04% 13.49% 14.02% 14.00%

PSBC 8.84% 9.56% 10.46% 11.13% 12.51%

Figure 13

12.52%

13.83% 14.22% 14.01%14.47%

9.99%11.17% 12.18% 12.23%

12.35%

9.99%10.88%

11.62% 11.65% 11.64%

2013 2014 2015 2016 2017

Total CAR

Tier 1 CAR

Common equitytier 1 CAR

Six large commercial banks’ CAR generally positive, but common equity tier 1 CAR under pressure

Common equity tier 1 CAR fell slightly

454.20 billion

-15.28 billion

Joint-stock Commercial Banks in 2017 – a snapshot


Financial position

Net Profit



Net interest income




Assets growth in last 5 years Liabilities growth last 5 years Provision coverage ratio in last 5 years



billion billion

NPL ratio Overdue loans ratio


Provision ratioProvision coverage ratio


NPL ratio vs overdue loans ratio


NPL ratio




0.88%-0.03 ppts

13.99%-1.05 ppts

1.69%-0.34 ppts

1.83%-0.33 ppts

30.34%2.52 ppts

291.32 billion

YOY 7.36%

1.64%-0.07 ppts

2.55%-0.45 ppts

291.34 billion

24.93 billion

493.83 billion

13.77 billion

2.77%-0.30 ppts

190.27%19.81 ppts

3.11%0.21 ppts

35.68 trillion

YOY 3.29%

33.18 trillion

YOY 2.50%

626.17 billion

YOY -5.65%

285.23 billion

YOY 5.62%

YOY 6.10%307.88 billion

2013 2014 2015 2016 2017 2013 2014 2015 2016 2017

2013 2014 2015 2016 2017 2013 2014 2015 2016 20172013 2014 2015 2016 2017 2013 2014 2015 2016 2017

13.06%

17.63% 17.81%18.51%

3.29%

12.45%

17.49% 17.59%18.65%

2.50%

257.32%

208.71%

173.41% 170.46%190.27%

2.25% 2.40%2.67%

2.92%3.11%

0.96%

2.86%

3.40%3.00%

2.55%

0.87%1.15%

1.54%1.70% 1.64%

0.87%

0.53%

1.36%

1.15%

1.98%

1.54%

2.06%

1.70%

1.83%

1.64%

2013 2014 20152016 2017 2013 2014 20152016 2017

88.4133.6

266.4204.8

291.3

97

332.4

469.5452.7 454.2

17.07%

9.97%

4.73% 5.56% 6.10%

2013 2014 20152016 2017


PwC

2.2 Joint-stock Commercial Banks

The disparity in net profit growth increases

The eight joint-stock commercial banks covered in the newsletter saw stable aggregate net profit growth of 6.10% in 2017, to 307.88 billion. The growth was higher compared with that in 2016 (5.56%). The disparity among banks was large both in terms of 2017 growth rate and the growth rate different between 2017 and 2016.

Analysis of profitability indicators suggested that most banks’ RoA and RoE were lower in 2017 than in 2016.

CIB 57.74

CMB 70.64

CMBC 50.92

CITIC 42.88

CEB 31.61

PAB 23.19

HXB 19.93

CZB 10.97

6.27%

13.24%

4.40%

2.61%

4.02%

2.61%

0.90%

8.07%

7.26%

7.52%

3.73%

0.11%

2.74%

3.36%

4.24%

44.00%

2017 vs 2016

2016 vs 2015

Figure 14

Return on total assets (RoA)

Return on equity (RoE)

2016 2017 2016 2017

CIB 0.95% 0.92% 17.28% 15.35%

CMB 1.09% 1.15% 16.27% 16.54%

CMBC 0.94% 0.86% 15.13% 14.03%

CITIC 0.76% 0.74% 12.58% 11.67%

CEB 0.85% 0.78% 13.80% 12.75%

PAB 0.83% 0.75% 13.18% 11.62%

HXB 0.90% 0.82% 15.75% 13.54%

CZB 0.85% 0.76% 17.34% 14.64%

A mixed picture for net profit growthThe disparity of net profit growth among eight joint-stock commercial banks was large

(In billions)


PwCBanking Newsletter

Fee & commission income continued to grow

Most of the eight joint-stock commercial banks saw their net interest income decreased in 2017 amid plunging asset growth and continued narrowing of NIM, with aggregate amount shrinking by 5.65% to 626.17 billion.

Fee and commission income (i.e. intermediary business ), on the other hand, remained resilient and became the major profit growth engine for these banks in 2017, with aggregate amount increasing by 5.62% to 285.23 billion. The growth was lower than that in 2016 (13.03%), indicating such business was also under threat.


Figure 15

-21.25%

7.62%

-8.59%

-6.12%

-6.64%

-3.14%

-3.41%

-3.32%

5.98%

5.18%

-8.65%

10.83%

9.47%

10.10%

25.59%

7.20%

CIB

CMB

CMBC

CITIC

CEB

PAB

HXB

CZB

Net interest income

Fee and commission income

Seven of the eight joint-stock commercial banks saw net interest income down in 2017, whereas fee &commission income continued to grow

Intermediary business continued to grow

April 2018

24


25

NIS and NIM still under pressure

Thanks to rising interest rates in financial markets, most joint-stock commercial banks’ yield on interest-generating assets improved in 2017. Yet this effect was more than offset by increasing funding costs which led to a much higher rise in cost on interest-paying liabilities. Consequently, the NIS and NIM continued their downward trend in past a few years.

The rise of cost on interbank liabilities, debt securities issued and due to central banks were most evident.


NIS 2013 2014 2015 2016 2017

CIB 2.23% 2.23% 2.26% 2.00% 1.44%

CMB 2.64% 2.44% 2.60% 2.37% 2.29%

CMBC 2.31% 2.41% 2.09% 1.74% 1.35%

CITIC 2.40% 2.19% 2.13% 1.89% 1.64%

CEB 1.95% 2.05% 2.01% 1.59% 1.32%

PAB 2.14% 2.40% 2.62% 2.60% 2.19%

HXB 2.50% 2.52% 2.41% 2.28% 1.88%

CZB 2.41% 2.38% 2.12% 1.89% 1.62%

NIM 2013 2014 2015 2016 2017

CIB 2.44% 2.48% 2.45% 2.23% 1.73%

CMB 2.82% 2.64% 2.76% 2.50% 2.43%

CMBC 2.49% 2.59% 2.26% 1.86% 1.50%

CITIC 2.60% 2.40% 2.31% 2.00% 1.79%

CEB 2.16% 2.30% 2.25% 1.78% 1.52%

PAB 2.31% 2.57% 2.81% 2.75% 2.37%

HXB 2.67% 2.69% 2.56% 2.42% 2.01%

CZB 2.63% 2.62% 2.31% 2.07% 1.71%

Figure 16

2.52% 2.52% 2.47%

2.16%

1.83%2.33% 2.31% 2.29%

2.03%

1.69%

2013 2014 2015 2016 2017

NIM

NIS

NIS & NIM of eight joint-stock commercial banks continued to narrow in 2017

NIS and NIM narrowed further

PwC

CIB 6.41

CMB 6.30

CMBC 5.90

CITIC 5.68

CEB 4.09

PAB 3.25

HXB 2.51

CZB 1.54


Asset growth plunged amid tougher regulatory environment

By the end of 2017, total assets of eight joint-stock commercial banks increased only by 3.29% to 35.68 trillion. The growth was much slower than that in 2016 (18.51%). Most of those banks saw asset their growth slowed by over 10 percentage points, with one bank’s growth even in the negative territory.

This drastic asset growth plunge happened under the tougher regulatory environment, where most banks adjusted their balance sheet by scaling down interbank assets and rebalancing investment portfolio.


5.44%

5.98%

0.11%

-4.27%

1.70%

9.99%

6.48%

13.43%

14.85%

8.54%

30.42%

15.79%

26.91%

17.80%

16.61%

31.33%

2017 vs 2016

2016 vs 2015

Figure 17

Asset growth plungedEight joint-stock commercial banks’ asset growth plunged in 2017 compared to 2016

(In trillions)


27

Scaling down interbank assets

Among various components of the assets of eight joint-stock commercial banks, loans continued to growth, whereas interbank assets decreased significantly in 2017, as banks scaled down interbank activities in response to the changing regulatory environment. Financial investment portfolio also registered negative or low growth.

Those banks’ credit expansion was largely driven by efforts in retail banking segment, with such loans grew rapidly.

As for investment portfolio, the change of each component varied among different banks.


Figure 18

13.65%

8.34%

13.87%

10.83%

13.08%

15.64%

14.46%

46.46%

-3.51%

8.78%

-3.22%

-21.99%

-1.53%

6.26%

19.55%

-8.16%

-27.26%

-16.82%

-41.26%

-35.78%

-33.09%

-15.39%

-58.67%

-27.44%

CIB

CMB

CMBC

CITIC

CEB

PAB

HXB

CZB

Interbank assets decreased sharply

Loans and advances

Financial investments

Interbank assets

Loans continued to grow for eight joint-stock commercial banks, while interbank assets decreased sharply


28

Encouraging signs emerged for credit asset quality

By the end of 2017, total NPL for eight joint-stock commercial banks increased by 9.36% to 291.34 billion. Yet their NPL ratio went down.

In addition, other indicators of these banks, such as special mention loan ratio, overdue loans ratio and past-due-but-not-impaired loans ratio all fell, showing encouraging signs on their credit asset quality.


NPL ratio 2013 2014 2015 2016 2017

CIB 0.76% 1.10% 1.46% 1.65% 1.59%

CMB 0.83% 1.11% 1.68% 1.87% 1.61%

CMBC 0.85% 1.17% 1.60% 1.68% 1.71%

CITIC 1.03% 1.30% 1.43% 1.69% 1.68%

CEB 0.86% 1.19% 1.61% 1.60% 1.59%

PAB 0.89% 1.02% 1.45% 1.74% 1.70%

HXB 0.90% 1.09% 1.52% 1.67% 1.76%

CZB 0.64% 0.88% 1.23% 1.33% 1.15%

Overdue loan ratio 2013 2014 2015 2016 2017

CIB 1.06% 2.25% 2.74% 2.15% 1.59%

CMB 1.50% 2.10% 2.85% 2.14% 1.74%

CMBC 1.74% 2.74% 3.94% 3.50% 3.18%

CITIC 1.83% 3.47% 2.96% 3.26% 2.86%

CEB 1.85% 3.47% 4.09% 2.87% 2.46%

PAB 3.13% 4.49% 4.72% 4.11% 3.54%

HXB 1.60% 2.43% 3.96% 4.72% 3.99%

CZB 0.86% 1.63% 1.83% 1.20% 1.07%

Past-due-but-not-impaired loan ratio

2013 2014 2015 2016 2017

CIB 0.33% 1.16% 1.29% 0.68% 0.37%

CMB 0.71% 1.03% 1.22% 0.52% 0.34%

CMBC 0.92% 1.58% 2.36% 1.85% 1.56%

CITIC 0.82% 2.18% 1.64% 1.70% 1.27%

CEB 1.06% 2.28% 2.60% 1.40% 1.06%

PAB 2.25% 3.48% 3.30% 2.49% 1.88%

HXB 0.71% 1.35% 2.44% 3.06% 2.27%

CZB 0.29% 0.80% 0.66% 0.25% 0.22%

1.71%

2.86%

3.40%

3.00%

2.55%

0.87%1.15%

1.54%

1.70%1.64%

0.87%

1.73%1.92%

1.45%

1.08%

2013 2014 2015 2016 2017

Overdue loans ratio

NPL ratio

Past-due-but-not-impaired loans ratio

Ratios for NPL, overdue loans and past-due-but-not-impaired loans all fell in unison for joint-stock commercial banks

Figure 19

Credit asset quality improved


29

Relying on write-offs and transfer-outs to dispose NPLs

Eight joint-stock commercial banks continued to mitigate credit risk by disposing outstanding NPLs in 2017.

Aggregate write-offs and transfer-outs of those banks reached 167.27 billion, accounting for nearly 60% of NPL balances.



NPL balancesWrite-offs&

transfer-outs


CIB 38.65 21.53 55.70%

CMB 57.39 24.26 42.27%

CMBC 47.89 22.80 47.61%

CITIC 53.65 35.72 66.59%

CEB 32.39 11.97 36.94%

PAB 29.00 39.61 136.60%

HXB 24.60 9.67 39.32%

CZB 7.77 1.71 22.00%

Total 291.34 167.27 57.41%

Figure 20

88

134

205

266

291

35

76

153

192

167

2013 2014 2015 2016 2017


Eight joint-stock commercial banks’ NPL balances increased in 2017, and the write-offs and transfer-outs remained large

(In billions)

Continued to dispose NPLs


30

Liabilities growth slowed with large disparity among banks

Changing regulatory environment’s impact on eight joint-stick commercial banks’ liabilities was also evident in 2017. By the end of 2017, total liabilities of these banks increased only by 2.50% to 33.18 trillion. The growth was much slower than in 2016 (18.66%), with some banks even registering negative growth.

Interbank assets of these banks shrank sharply in 2017, whereas due deposits growth slowed too. Deposit growth varied among different banks, with some recording negative growth.

New types of liabilities, such as interbank negotiable certificates of deposit, increased relatively faster for these banks.


Figure 21

Liabilities growth slowedEight joint-stock banks saw much lower liabilities growth in 2017

(In trillions)

CIB 5.99

CMB 5.81

CMBC 5.51

CITIC 5.27

CEB 3.78

PAB 3.03

HXB 2.34

CZB 1.45

4.58%

4.97%

-0.57%

-5.07%

0.37%

10.00%

6.18%

12.40%

15.06%

8.33%

31.65%

15.49%

28.04%

17.29%

15.83%

31.10%

2017 vs 2016

2016 vs 2015


31

Pressure in common equity tier 1 capital

Eight joint-stock commercial banks’ CAR rose steadily in 2017, thanks to their active issuance of various instruments such as preferred stocks and tier 2 capital bonds.

That said, CAR changes varied among different banks. So were their challenges in capital base, with the common equity tier 1 experiencing most pressure.



2013 2014 2015 2016 2017

CIB 8.68% 8.45% 8.43% 8.55% 9.07%

CMB 9.27% 10.44% 10.83% 11.54% 12.06%

CMBC 8.72% 8.58% 9.17% 8.95% 8.63%

CITIC 8.78% 8.93% 9.12% 8.64% 8.49%

CEB 9.11% 9.34% 9.24% 8.21% 9.56%

PAB 8.56% 8.64% 9.03% 8.36% 8.28%

HXB 8.03% 8.49% 8.89% 8.43% 7.73%

CZB 9.17% 8.62% 9.35% 9.28% 8.29%

Tier 1 CAR 2013 2014 2015 2016 2017

CIB 8.68% 8.89% 9.19% 9.23% 9.67%

CMB 9.27% 10.44% 10.83% 11.54% 13.02%

CMBC 8.72% 8.59% 9.19% 9.22% 8.88%

CITIC 8.78% 8.99% 9.17% 9.65% 9.34%

CEB 9.11% 9.34% 10.15% 9.34% 10.61%

PAB 8.56% 8.64% 9.03% 9.34% 9.18%

HXB 8.03% 8.49% 8.89% 9.70% 8.85%

CZB 9.17% 8.62% 9.35% 9.28% 9.96%

Total CAR 2013 2014 2015 2016 2017

CIB 10.83% 11.29% 11.19% 12.02% 12.19%

CMB 11.14% 12.38% 12.57% 13.33% 15.48%

CMBC 10.69% 10.69% 11.49% 11.73% 11.85%

CITIC 11.24% 12.33% 11.87% 11.98% 11.65%

CEB 10.57% 11.21% 11.87% 10.80% 13.49%

PAB 9.90% 10.86% 10.94% 11.53% 11.20%

HXB 9.88% 11.03% 10.85% 11.36% 11.78%

CZB 11.53% 10.60% 11.04% 11.79% 12.21%Figure 22

10.78%11.48% 11.63% 11.91%

12.54%

8.82% 9.12% 9.54% 9.72% 9.97%

8.82% 9.03% 9.29% 9.05% 9.18%

2013 2014 2015 2016 2017

Total CAR

Tier 1 CAR

Commonequity tier 1CAR

Eight joint-stock commercial banks used different instruments to strengthen capital base in 2017, as a result CAR rose steadily

Total CAR rose steadily

99.95 billion

0.43 billion

Rural & City Commercial Banks in 2017 – a snapshot


Financial position

Net Profit



Net interest income




Assets growth in last 4 years Liabilities growth last 4 years Provision coverage ratio in last 4 years



billion billion

NPL ratio Overdue loan ratio


Provision coverage ratioProvision coverage ratio


NPL ratio vs overdue loan ratio


NPL ratio



0.89%-0.06 ppts

14.17%-1.01 ppts

1.84%-0.25 ppts

1.94%-0.28 ppts

29.58%1.40 ppts

81.02 billion

YOY 7.26%

1.34%-0.02 ppts

2.11%-0.39 ppts

63.53 billion

8.95 billion

123.11 billion

7.25 billion

2.59%-0.29 ppts

234.66%8.10 ppts

3.14%0.06 ppts

12.82 trillion

YOY 12.13%

11.92 trillion

YOY 11.33%

223.71 billion

YOY 0.87%

39.08 billion

YOY 3.50%

YOY 10.19%108.08 billion

2014 2015 2016 2017 2014 2015 2016 2017

2014 2015 2016 2017 2014 2015 2016 20172014 2015 2016 2017 2014 2015 2016 2017

29.28%26.23%

23.02%

12.13%

28.47% 26.23% 23.28%

11.33%

251.62%

233.29%

226.56%

234.66%2.65%

2.92%3.08% 3.14%

1.56%

2.73%2.50%

2.11%

1.05%1.25%

1.36% 1.34%

1.05%

0.86%

1.63%

1.25%

1.61%

1.36%

1.40%

1.34%

2014 20162015 2017 2014 2015 2016 2017

31.7

43.754.6

63.5

46.9

95.2100.4 99.9

20.96%

14.34% 14.74%

10.19%

2014 20162015 2017



PwC

2.3 Rural & City Commercial Banks

Net profit growth slowed, with volatility among individual banks

The 20 rural & city commercial banks covered in the newsletter generated an aggregate of 108.08 billion net profit in 2017, increased by 10.19% compared with 14.74% in 2016.

Among individual banks, the difference and volatility of their profit growth was large. In general, city commercial banks saw lower growth rate while rural commercial banks higher.

Shanghai 15.34

Jiangsu 12.02

Ningbo 9.36

Shengjing 7.57

Huishang 7.81

Jinzhou 9.09

Tianjin 3.94

Harbin 5.31

Zhongyuan 3.91

Zhengzhou 4.33

Chongqing 3.76

Qingdao 1.90

Gansu 3.36

7.06%

12.96%

19.60%

10.12%

11.66%

10.86%

-12.72%

6.99%

16.24%

7.14%

7.48%

-8.86%

75.08%

9.83%

11.91%

19.12%

10.52%

12.62%

67.06%

-8.40%

10.04%

11.54%

20.53%

10.48%

15.15%

47.95%

2017 vs 2016 2016 vs 2015

Chongqing RCB 9.01

Guangzhou RCB 5.89

Jiutai RCB 1.64

Changshu RCB 1.32

Wuxi RCB 0.99

Jiangyin RCB 0.76

Zhangjiagang RCB 0.76

12.59%

15.37%

-29.25%

25.32%

12.38%

-1.22%

8.90%

10.70%

2.09%

65.16%

7.35%

7.88%

-5.83%

2.16%

Different growth trend for rural & city commercial banksCity commercial banks saw lower net profit growth while rural commercial banks higher

(In billions)

Figure 23



34

Income growth presented different pictures

City commercial banks saw negative or low growth in net interest income and high growth in fee and commission income in 2017. Yet rural commercial banks presented different pictures: interest income growth stood out.


Figure 24

-26.47%

10.18%

-6.69%

-8.64%

10.13%

19.97%

-18.90%

-2.30%

8.91%

-2.34%

5.70%

-4.10%

12.22%

1.61%

-0.73%

6.43%

-15.73%

14.15%

-8.97%

45.03%

2.14%

71.37%

53.58%

-12.77%

-6.66%

46.96%

Shanghai

Jiangsu

Ningbo

Shengjing

Huishang

Jinzhou

Tianjin

Harbin

Zhongyuan

Zhengzhou

Chongqing

Qingdao

Gansu

Net interest income Fee and commission income

10.80%

9.59%

4.47%

7.73%

16.03%

-7.16%

7.26%

8.37%

-23.00%

-17.77%

42.16%

-9.19%

7.39%

-9.01%

Chongqing RCB

Guangzhou RCB

Jiutai RCB

Changshu RCB

Wuxi RCB

Jiangyin RCB

Zhangjiagang RCB

Different trends for income growth

While city commercial banks’ fee & commission income growth stood out, so did rural commercial banks’ interest income


35

NIS and NIM continued to fall

The 20 rural & city commercial banks’ NIS and NIM continued to fall and under pressure.

Although yield on interest-generating assets rose slightly, cost on interest-paying liabilities rose much faster and resulting narrowing NIS and NIM.


Figure 25

NIM 2014 2015 2016 2017

Shanghai 2.21% 2.02% 1.73% 1.25%

Jiangsu 2.45% 1.94% 1.70% 1.58%

Ningbo 2.51% 2.38% 1.95% 1.94%

Shengjing 2.32% 2.14% 1.75% 1.50%

Huishang 1.82% 2.71% 2.59% 2.31%

Jinzhou 2.63% 3.51% 3.67% 2.88%

Tianjin 2.06% 2.08% 1.76% 1.25%

Harbin 2.71% 2.68% 2.74% 2.26%

Zhongyuan 4.97% 3.96% 3.26% 2.76%

Zhengzhou 3.31% 3.12% 2.69% 2.08%

Chongqing 2.81% 2.52% 2.38% 2.11%

Qingdao 2.43% 2.36% 2.23% 1.68%

Gansu 2.82% 2.89% 3.08% 2.91%

Chongqing RCB 3.37% 3.20% 2.74% 2.62%

Guangzhou RCB 2.91% 2.50% 1.98% 1.70%

Jiutai RCB 3.40% 3.01% 2.67% 2.38%

Changshu RCB 3.08% 3.04% 3.22% 2.91%

Wuxi RCB 2.41% 2.00% 1.96% 2.15%

Jiangyin RCB 2.95% 2.77% 2.34% 2.33%

Zhangjiagang RCB 3.02% 2.80% 2.24% 2.33%

2.50% 2.51%

2.22%

1.94%

2.11%

2.32%

2.09%

1.84%

2014 2015 2016 2017

NIM

NIS

NIS & NIM for the 20 rural & city commercial banks continued to fall

NIS and NIM under pressure


36

Asset expansion slowed

By the end of 2017, total assets of 20 rural and city commercial banks increased by 12.13% to 12.82 billion. Their growth was much lower than in 2016 (23.02%). The slowdown was more apparent forcity commercial banks, whereas rural commercial banks saw stable or even faster growth.


Figure 26

2.98%

10.78%

16.61%

13.82%

20.31%

34.20%

6.79%

4.68%

20.53%

19.03%

13.31%

10.18%

10.65%

21.13%

23.87%

23.53%

29.05%

18.65%

49.05%

16.20%

21.17%

41.58%

37.84%

16.66%

48.47%

Shanghai

Jiangsu

Ningbo

Shengjing

Huishang

Jinzhou

Tianjin

Harbin

Zhongyuan

Zhengzhou

Chongqing

Qingdao

Gansu

2017 vs 2016 2016 vs 2015

177.82%*

12.78%

11.31%

-2.33%

12.19%

10.02%

5.11%

14.41%

12.05%

13.41%

34.88%

19.79%

7.92%

15.04%

9.50%

Chongqing RCB

Guangzhou RCB

Jiutai RCB

Changshu RCB

Wuxi RCB

Jiangyin RCB

Zhangjiagang RCB

*Bank of Gansu’s total assets changed significantly in 2016 due it was in restructuring and IPO stages.

Slower asset growth for city commercial banksCity commercial banks’ asset growth slowed while rural commercial banks’ remained stable


37

Loans and financial investments continued to grow while interbank assets shrank

Loans and financial investments of rural and city banks continued to grow at a faster pace, while interbank assets shrank. Most of these banks increased their investments in bonds and non-standard assets, with investments still being the largest component of assets.

Individual banks’ loan growth and loan mix presented a mix picture.

As for financial investments, those banks’ investments classified as receivable increased and remained the major part of the portfolios.


Figure 27

19.69%

17.88%

13.46%

18.74%

13.32%

71.48%

12.23%

17.38%

20.92%

15.63%

17.29%

12.55%

20.32%

-9.05%

12.33%

21.88%

22.23%

23.84%

22.24%

16.96%

6.42%

24.00%

21.58%

32.51%

7.63%

-19.53%

19.90%

-11.11%

-24.78%

-29.61%

60.02%

80.90%-59.47%

-47.67%

-17.18%

33.54%

-33.58%

-31.13%

62.07%

Shanghai

Jiangsu

Ningbo

Shengjing

Huishang

Jinzhou

Tianjin

Harbin

Zhongyuan

Zhengzhou

Chongqing

Qingdao

Gansu

Loans

Financialinvestments

Interbankassets

12.49%

20.08%

24.43%

16.64%

9.80%

5.78%

11.08%

20.42%

3.94%

63.75%

16.86%

13.15%

7.63%

21.83%

-0.26%

-4.71%

-71.87%

-50.30%

2.14%

-13.18%

0.79%

Chongqing RCB

Guangzhou RCB

Jiutai RCB

Changshu RCB

Wuxi RCB

Jiangyin RCB

Zhangjiagang RCB

Loans Financial investments Interbank assets

Shrinking interbank assetsLoans and financial investments of 20 rural and city commercial banks grew, while interbank assets shrank


38

Credit assets quality improved

NPL balances of 20 rural and city commercial banks increased by 16.41% to 63.53 billion at the of 2017. NPL balance growth slowed across banks, with divergence between different banks.

In general, NPL ratio, special mention loan ratio, overdue loan ratio and past-due-but-not-impaired loan ratio of those banks all went down.


Figure 28

NPL ratio 2014 2015 2016 2017

Shanghai 0.98% 1.19% 1.17% 1.15%

Jiangsu 1.30% 1.43% 1.43% 1.41%

Ningbo 0.89% 0.92% 0.91% 0.82%

Shengjing 0.44% 0.42% 1.74% 1.49%

Huishang 0.83% 0.99% 1.07% 1.05%

Jinzhou 0.99% 1.03% 1.14% 1.04%

Tianjin 1.09% 1.34% 1.48% 1.50%

Harbin 1.13% 1.40% 1.53% 1.70%

Zhongyuan 1.92% 1.95% 1.86% 1.83%

Zhengzhou 0.75% 1.10% 1.31% 1.50%

Chongqing 0.69% 0.97% 0.96% 1.35%

Qingdao 1.14% 1.19% 1.36% 1.69%

Gansu 0.39% 1.77% 1.81% 1.74%

Chongqing RCB 0.78% 0.98% 0.96% 0.98%

Guangzhou RCB 1.54% 1.80% 1.81% 1.51%

Jiutai RCB 1.19% 1.42% 1.41% 1.76%

Changshu RCB 0.93% 1.43% 1.40% 1.14%

Wuxi RCB 1.15% 1.17% 1.39% 1.38%

Jiangyin RCB 1.91% 2.17% 2.41% 2.39%


2.02%

2.73%2.50%

2.25%

1.05%1.25%

1.36% 1.34%1.03%

1.51%

1.19% 0.79%

2014 2015 2016 2017

Overdue loan ratio

NPL Ratio

Past-due-but-not-impaired loansratio

NPL ratios, overdue loan ratios and past-due-but-not-impaired loan ratios of rural and city commercial banks all went down

Credit assets quality improved

PwC

Differentiated efforts to dispose NPLs

Write-offs and transfer-outs of 20 rural and city commercial banks totaled 23.15 billion in 2017, accounting for 36.44% of NPL balances.


Figure 29


NPL balancesWrite-offs&

transfer-outs


Shanghai 7.64 2.45 31.99%

Jiangsu 10.55 5.45 51.63%

Ningbo 2.84 1.94 68.45%

Shengjing 4.16 0.01 0.21%

Huishang 3.30 2.97 90.02%

Jinzhou 2.25 0.39 17.30%

Tianjin 3.74 0.30 7.99%

Harbin 4.04 0.42 10.51%

Zhongyuan 3.64 0.42 11.60%

Zhengzhou 1.93 1.27 66.08%

Chongqing 2.40 1.67 69.70%

Qingdao 1.66 1.04 62.86%

Gansu 2.27 0.00 0.00%

Chongqing RCB 3.30 1.60 48.36%

Guangzhou RCB 4.45 1.29 28.98%

Jiutai RCB 1.36 0.01 0.44%

Changshu RCB 0.89 0.72 80.60%

Wuxi RCB 0.91 0.35 38.13%

Jiangyin RCB 1.34 0.25 18.59%

Zhangjiagang RCB 0.87 0.61 69.40%

Chongqing RCB 63.53 23.15 36.44%

32

44

55

64

10

18

2623

2014 2015 2016 2017


While NPL balance continued to increase for 20 rural and city commercial banks, their write-offs and transfer-outs decreased slightly

Slowed write-offs and transfer-outs



40

Liabilities growth slowed

Total liabilities of 20 rural and city commercial banks increased by 11.33% to 11.92 trillion in 2017. The growth was slower than in 2016 (23.28%), dragged by decreasing interbank liabilities and slower deposits. City commercial banks’ slower growth trend was more evident, whereas rural commercial banks’ growth remained relatively stable.

These banks continued to issue interbank negotiable certificates of deposit, leading to rapid growth in debt securities issued. Their interbank liabilities decreased slightly. Relatively, their deposit grew faster.


Figure 30

1.29%

9.49%

16.80%

13.88%

20.99%

33.68%

6.76%

4.02%

19.70%

16.88%

11.74%

7.61%

9.85%

20.85%

23.62%

24.32%

30.18%

18.16%

47.94%

15.61%

22.06%

45.91%

38.94%

17.01%

52.59%

15.95%

Shanghai

Jiangsu

Ningbo

Shengjing

Huishang

Jinzhou

Tianjin

Harbin

Zhongyuan

Zhengzhou

Chongqing

Qingdao

Gansu

2017 vs 2016 2016 vs 2015

12.23%

10.29%

-4.16%

12.69%

10.38%

5.23%

14.57%

12.03%

13.89%

36.63%

19.46%

7.21%

14.59%

10.00%

Chongqing RCB

Guangzhou RCB

Jiutai RCB

Changshu RCB

Wuxi RCB

Jiangyin RCB

Zhangjiagang RCB

City commercial banks liabilities growth slowed

City commercial banks’ liabilities growth was slower, while most rural commercial banks saw steady growth


41

Common equity tier 1 CAR went down

Common equity tier 1 CAR of 20 rural and city commercial banks went down in 2017, as the growth of risk-weighted assets outpaced that of core capital.

Tier 1 CAR and total CAR of those banks rebounded in 2017 but still under pressure.


Figure 31


2014 2015 2016 2017

Shanghai 10.38% 10.32% 11.13% 10.69%

Jiangsu 8.76% 8.59% 9.01% 8.54%

Ningbo 10.07% 9.03% 8.55% 8.61%

Shengjing 11.04% 9.42% 9.10% 9.04%

Huishang 11.50% 9.80% 8.79% 8.48%

Jinzhou 8.64% 8.96% 9.79% 8.44%

Tianjin 10.64% 9.33% 9.48% 8.64%

Harbin 13.94% 11.14% 9.34% 9.72%

Zhongyuan 16.98% 14.80% 11.24% 12.15%

Zhengzhou 8.66% 10.09% 8.79% 7.93%

Chongqing 9.63% 10.49% 9.82% 8.62%

Qingdao 9.72% 12.48% 10.08% 8.71%

Gansu 9.85% 8.57% 8.58% 8.71%

Chongqing RCB 10.12% 9.88% 9.85% 10.39%

Guangzhou RCB 11.16% 10.28% 9.90% 10.69%

Jiutai RCB 13.82% 12.49% 10.35% 9.47%

Changshu RCB 12.08% 11.31% 10.90% 9.88%

Wuxi RCB 10.49% 10.69% 10.28% 9.93%

Jiangyin RCB 12.85% 12.87% 12.80% 12.94%


12.84% 12.91%12.30%

12.91%

10.64%10.14% 9.88%

10.41%

10.64%10.05% 9.72% 9.44%

2014 2015 2016 2017

Total CAR

Tier 1 CAR

Common equitytier 1 CAR

Common equity tier 1 CAR of 20 rural and city commercial banks continued to fall, with their tier 1 and total CAR also under pressure

CAR under pressure

42April 2018

Banking Newsletter

1. Banks’ wealth management business is set to transform under the New AM Regulations

2. Addressing shadow banking risks to ensure banks’ ongoing stability

3. Leveraging New Provision Regulations to enhance risk management

4. Quantifying the implications of new financial instrument reporting standards (IFRS 9): equity to decrease by 1%-3%, Common Equity Tier 1 CAR under pressure

Features

PwC

3.1 Banks’ wealth management business is set to transform under the New AM Regulations

Asset management (or wealth management in this context) business has grown rapidly in recent years in China, playing an important role in meeting investing and financing demand of households and corporate while optimising social financing structure. Yet the risk of such business are piling as a result of improper business activities, multi-layered product structuring, implicit guarantees in the event of default, and evasion of financial and macro regulations. In order to regulate financial institutions’ asset management business, unify the regulation on asset management-like products among financial institutions, contain financial risks and channel funds to real economy, the PBoCtogether with other regulatory bodies released Guiding Opinions on Regulating the Asset Management Business of Financial Institutions (Consultation Paper) in November 2017 (“New AM Regulations”.

From Bank wealth management products’ (WMPs) perspective, the New AM regulations are addressing a number of issues, including:

1. Reducing maturity mismatch risk

In order to reduce duration mismatch risk, Banks need to strengthen maturity management of their WMPs, with close-end WMPs maturity no shorter than 90 days. Banks are advised to set management fees according to product maturity, the longer maturity, the lower the annualised fee.

2. Banning on-balance-sheet WMPs

Asset management business is banks’ off-balance sheet activities. As a result, banks are not supposed to guarantee principal and/or returns when dealing with customers. In the event the fund user(s) of a product are unable to repay principal and/or interest, it is not allowed for banks to service the debt instead in any form. No on-balance sheet WMPs are permitted in whatsoever.

3. Prohibiting fund pooling activities

Banks are required to manage, book and account each WMP separately under the New AM Regulations. They are prohibited to participate in fund pooling-like activities such as issuing products with rolling over features, products under collective operations, or products with separate pricing mechanism between assets and liabilities.

4. Discouraging implicit guarantee in the event of default

Banks are expected to make effort in investor education to improve their financial literacy, raise their awareness of risk. This will help to rebuild the market consensus of “those who sell fulfil the duty, those who buy bear the risk” – a significant step toward breaking the implicit guarantee practices in the event of product default.

5. Imposing operational risk reserve requirement

The New AM Regulations require banks to make 10% of their product management fees as risk reserve charges, or either make provisions on operational risk capital or corresponding risk capital reserves, with the cap of the reserve setting at 1% of products balance. Risk reserves will be used to cover losses arising from illegal, improper, contract breaching conducts by banks, and losses arising from operational or technical errors.

6. Restricting multi-layered product structuring practices

The News AM Regulations dictate that an AM can invest in another AM product provided the invested product does not hold a third product, except for mutual fund.



46

By the time this report went to print, the New AM regulations has not been finalised yet. But its implications on banks’ wealth management products are expected to be profound and far reaching. The business is set to transformation.

We believe the New AM regulations will impact banks’ WMPs in following areas:

1. Current business model of WMPs is no longer sustainable

Most existing WMPs hold assets with longer maturities than those in their liabilities. Since the New AM Regulations require each product to reduce the maturity mismatch between assets and liabilities, it might be difficult to attract funds from investors. In other words, the current business model is no longer sustainable in the future.

2. “Principal-preserved” WMPs will fade out

According to New AM Regulations, banks cannot on-balance sheet WM business, nor can they guarantee principal and/or returns to customers, such “principle guaranteed/preserved products will fade out and become history.

3. Better use of funds calls for dedicated management

New AM Regulations explicitly require separatemanagement, booking and accounting of each investment products. This call for a better use of funds and more dedicated management. Prohibition of fund pooling activities will also bring challenges to maturity management, accurate accounting and fund repayment.

4. Valuation capability to be improved under “fair value management”

New AM Regulations require such portfolio to be management on a fair value basis to reflect the risk and return of underlying assets. This call for asset managers’ capability transformation in many areas from management to operations. Efforts need to be made in reining maturity mismatch and issuance with rolling over features - introducing certain degree of penalty might be useful. The practices ofimplicit guarantee in the event of product defaultare also need to be strongly discouraged. Given the fact that investors’ risk awareness vary, and that it takes time to establish the market consensus of “those who sell fulfil the duty, those who buy bear the risk”, there are risks that investors might walk away.

5. Risk reserve requires more sophisticated skills for practitioners

Under the New AM Regulations, practitioners’ skills, especially on investment and operations are to be improved. As a result, banks need to increase staff training so as to prevent improper and illegal activities that will bring loss to investors.

6. Product structuring to be refined

Streamlining product layers facilitates regulators to supervise investment scope and leveraging, and in turn ensure the security and stability of invested funds. What remained to be clarified is the format and definition of “layer”. As such, banks are advised to closely monitor any further regulatory updates and plan ahead for adjustment of existing product structuring.

PwC

3.2 Addressing shadow banking risks to ensure banks’ ongoing stability

Takeaways from a series of China’s top decision making meeting and documentation since 2017 (including the 19th Party Congress, Central Financial Work Conference, Government Work Report, and the inaugural meeting of China Banking and Insurance Regulatory Commission) suggest that preventing and mitigating financial risks is the top priority for the country’s senior leadership. Addressing shadow banking risks is among the “top of the tops”.

While some shadow banking businesses did support the real economy, the inherited risks are alarming: these activities are beyond the reach of supervision, distorting regulatory indicators, and magnifying risks - posing challenges to macro prudential regulation. Consequently, the shadow banking activities must be tamed.

Over past one year, Chinese regulatory authorities’ measures generally followed a two-phased approach, firstly understanding the situation and then taking actions:

• The regulatory inspections commonly referred to as “three, three, four, ten” (three types of violations, three types of arbitrages, four types of improper conducts, and ten types of malpractices) by the banking regulators to understand real situations;

• Policies regarding shadow banking include: Guiding Opinions on Regulating the Asset Management Business of Financial Institutions (Consultation Paper) (the New AM Regulations, see article 3.1 for more details), Guiding Opinions on Regulating Bank-trust Business and Guiding Opinions on Regulating Banks Entrusted Loans;

• In 2018, the banking regulatory authority released Notice on Further Inspecting Banks’ Malpractices, in attempt to continue its effort in regulating shadow banking activities;

• In April 2018 the State Council issued new circular to comprehensively improve financial statistics, to be driven by the PBoC.

On the measures to contain shadow banking businesses, measures are focused on asset and liability side:

• Asset side: imposing provision requirement on certain assets

• Liability side: risk provision requirement on certain liabilities

In additional, some credit-like investments of banks were included in the PBoC’s macro prudential assessment (MPA) since 2016, so did off-balance sheet WMPs since 1Q 2017.

The purpose of above measures is to treat shadow banking activities as credit business and those who conduct such business to be regulated as banking institutions. Stringent regulations are expected to contain the size of shadow banking and prevent its inherited risks.

Most banks are feeling the pain of those measures, which was reflected in banks’ 2017 results, with the effect on medium and small banks (Joint-stock, Rural and City Banks) being most obvious.

Eight Joint-stock Commercial Banks and 20 Rural & City Commercial Banks’ assets and liabilities grew significantly more slowly in 2017 (see details in section 2.2 and 2.3).


PwC

Financial investments and interbank activities were among the most affected components in banks’ balance sheet. Investments as a percentage of total assets dropped for Joint-stock Commercial Banks, and the percentage rise slowed for Rural and City Commercial Banks.Interbank assets’ percentage in total assets continued to slide.

The New AM Regulations, one of the efforts to contain shadow banking activities, have brought impact on banks’ wealth management products (WMPs), too. According to China Bank Wealth Management Annual Report 2017, the balance of WMPs increased by 1.69% to 29.54 trillion at the end of 2017. The growth was 21.94 percentage points slower than that of 2016.

A one-size-fits-all approach to dealing with shadow banking may not be ideal, as some of these businesses do support the real economy -flexibility is still needed.

In summary, addressing shadow banking risks will inevitably impact banks’ business in the short run, even on their capital adequacy. Yet a more transparent balance sheet is favourable for their prudential operation and development in long run. 18.98%

14.82%

11.10%

7.99%

5.63%

16.73%

16.09%

12.54%

8.98%7.12%

2013 2014 2015 2016 2017

JSCBs RCCBs

17.87%

23.17%

30.91%35.27%

32.95%23.01%

28.33%

37.98%

44.53% 44.61%

2013 2014 2015 2016 2017

JSCBs RCCBs


Figure 32

Investments as a % of total assets dropped for JSCBs, and the % rise slowed for RCCBs

Figure 33

Interbank assets as a % of total assets dropped continually for both JSCBs and RCCBs

PwC

3.3 Leveraging New Provision Regulations to enhance risk management

Banking Newsletter49

With the growing credit asset quality risk, banks in China have been increasing their loan impairment charges to mitigate the challenge. Yet rising provisions has also threatened their profit growth and capital adequacy, and in turn crippled banks’ capacity to serve the real economy.

To alleviate banks’ pressure and encourage them to accelerate the disposal of non-performing loans (NPLs), properly reflect asset quality, and ensure their capacity to fuel economic growth, the banking regulatory authority in Q1 2018 issued a circular (the “New Provision Regulations”) to adjust banks’ provision requirements.

Moving to a bank specific, interval-based supervision approach

According to the New Provision Regulations, banks’ provision coverage ratio and provision ratio requirement will move to a bank specific approach

that corresponding to a certain supervision interval, from the existing single and universal approach (current threshold is 150% for provision coverage ratio and 2.5% for provision ratio, applicable to all banks). Under the new approach, the intervals for provision coverage ratio range from 120% to 150%, and provision ratio 1.5% to 2.5%. Each bank’s applicable provision supervision interval will be considered from three perspectives: 1) accuracy of loan classification; 2) disposal of NPLs; and 3) capital adequacy (see the next page for elaboration on each consideration), whichever is the higher.

According to their 2017 annual reports, the 34 banks in our analysis have all met the regulatory threshold for provision coverage ratio, mostly with higher readings than in 2016.

251.62%233.29% 226.56%

234.66%

208.71% 173.41% 170.46%190.27%

227.05%

167.49% 159.05%176.40%

2014.12.31 2015.12.31 2016.12.31 2017.12.31

RCCBs

JSBCs

LCBs

The 34 banks in our analysis have all met the regulatory threshold for provision coverage ratio, mostly with higher readings than in 2016

Provision coverage ratios on the rise

Figure 34

April 2018

PwC

The extent a bank classified its

loans overdued 90 days or above into NPL

Minimum requirement for

provisioncoverage ratio

Minimum requirement for provision ratio

100% 120% 1.5%

[85%，100%) 130% 1.8%

[70%，85%) 140% 2.1%

Below 70% 150% 2.5%

1) Accuracy of loan classification

This consideration is based on the extent a bank classified its loans overdued 90 days or above into NPL. Those who classified higher percentage of 90-day-or-above overdue loans as NPL is likely to be applicable to lower supervision interval.

2) Disposal of NPLs

This consideration looks into a bank willingness to dispose its NPLs by examining its outstanding NPL disposal as % of new NPL formation. Those dispose higher percentage of outstanding NPL is likely to be applicable to lower supervision interval.

3) capital adequacy

This consideration encourages banks to maintain a higher capital adequacy ratio (CAR), as those who do is likely to be applicable to lower supervision interval. Those who are unable to meet a certain level of CAR will not be applicable to lower supervision interval.

Outstanding NPL disposal as % of

new NPL formation

Minimum requirement for provision

coverage ratio

Minimum requirement for provision ratio

90% and above 120% 1.5%

[75%，90%) 130% 1.8%

[60%，75%) 140% 2.1%

Below 60% 150% 2.5%

CAR(for domestic

SIBs)

CAR(for domestic

non-SIBs)

Minimum requirement

for provisioncoverage

ratio

Minimum requirement for provision

ratio

13.5% and above 12.5% and above 120% 1.5%

[12.5%，13.5%) [11.5%，12.5%) 130% 1.8%

[11.5%，12.5%) [10.5%，11.5%) 140% 2.1%

Below 11.5% Below 10.5% 150% 2.5%

Banks who met certain criteria is likely be applicable to lower supervision interval

As mention above, three considerations governing a bank’s applicable supervision interval under the New Provision Regulations:

The New Provision Regulations reflected a case by case supervision approach with greater flexibility. It also provide incentives for banks to dispose NPLs in a timely manner, classify loans appropriately, and improve capital management. Those who follow the new regulations are expected to be able to apply to more favourable supervision interval.

50

Note: 1. “[“ means greater than or equal to, “)” means less than.2. “SIBs” refer to systematically important banks.

Banking Newsletter April 2018

PwCBanking Newsletter

51

Based on above three considerations, and the 2017 annual financial statements of the 34 banks in our analysis, we estimated the number of banks falling into each applicable supervision interval (see table below). The result suggests that most banks are eligible to lower supervision interval in one or two categories, yet there is only one bank consistently falling into the same category in all three categories.

It is advised that listed banks should leverage the New Provision Regulations to improve credit risk management, profitability and capital adequacy.

April 2018

Applicableprovision coverage

ratio interval

Applicableprovision ratio

interval

Accuracy of loan classification

Disposal of NPLsCapital

Adequacy

120%~130% 1.5%~1.8%

LCBs 4 2 5

JSBCs 0 3 2

RCCBs 1 5 9

130%~140% 1.8%~2.1%

LCBs 2 4 1

JSBCs 2 1 3

RCCBs 7 4 3

140%~150% 2.1%~2.5%

LCBs 0 0 0

JSBCs 2 1 1

RCCBs 2 0 0

150% 2.5%

LCBs 0 0 0

JSBCs 2 1 0

RCCBs 2 3 0

PwC

3.4 Quantifying the implications of new financial instrument reporting standards (IFRS 9): equity to decrease by 1%-3%, Common Equity Tier 1 CAR under pressure


International Financial Reporting Standards No.9: financial instruments (IFRS 9), with the aim of enhancing the relevance and understandability of information about financial instruments, was released on July 2014. China Accounting Standards (CAS 22, 23, 24) has also been amended in 2017 accordingly to ensure the convergence with its global counterparts. For those listed in H share and A+H share markets, above new standards will be implemented from 1 January 2018.

According to IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors, entities that have not applied a new standard or interpretation that has been issued but is not yet effective must disclose that fact and any and known or reasonably estimable information relevant to assessing the possible impact that the new pronouncement will have in the year it is applied. Most listed banks that applicable to the new standards have disclosure the expected implications with quantitative information in their 2017 annual reports.

The new standards will affect banks in three areas: 1) classification and measurement; 2) impairment; and 3) hedge accounting. Disclosures from 20 of the

34 listed banks in our analysis (see a detailed table on page 53) that are both applicable to the new standards and revealed quantitative implications show that most banks’ equity is expected to increase as a result of re-classification and measurement; conversely, their equity is expected to decrease upon the application of the expected credit loss (ECL) model.

A comprehensive study of these 20 banks suggests that the net effect of the new standards upon adoption is likely to have equity decreased by 1% to 3%, causing by the application of the ECL model. In additional, some banks explicitly predicted that Common Equity Tier 1 CAR would drop by no more than 20 basis points upon adoption, indicating the new standards do bring pressure banks’ capital.

Generally speaking, the net effect on equity is negatively correlated with banks’ size: Large Commercial Banks expect to decrease by a smaller proportion; Rural & City Commercial Banks expect to decrease by a larger proportion; the effect on Joint-stock Commercial Banks is in-between, with wider variation between individual banks.

Bank group IFRS 9’s implications for equity

Large Commercial Banks No more than 1%~2%

Joint-stock Commercial Banks No more than 1%~3%

Rural & City Commercial Banks No more than 2%~3%

April 2018

PwC

Bank Impact on net asset Size (in RMB)

ICBC Decrease No more than 1.7%

CCB Decrease Around 1%

ABC Decrease No more than 2%

BOC Decrease Around 2%

PSBC Decrease No more than 1%

BOCOM Decrease No quantified disclosure

CZB Decrease No more than 1%

CIB N/A N/A

CMBC Decrease No more than 3%

CMB Decrease• Retained earning to decrease by 9 billion• Other comprehensive income to increase by 3.2 billion• Equity to decrease by 5.8 billion or 1.26%

CITIC Decrease 6.1 billion

PAB Decrease• Beginning retailed earning to decrease by 4.9 billion• Other comprehensive income to increase by 402 million• Equity to decrease by 4.5 billion or 2.04%

CEB Decrease 2.87%

HXB N/A N/A

Shanghai N/A N/A

Jiangsu N/A N/A

Shengjing Decrease No more than 2%

GansuOnly results announcement released, not full financial statements and footnotes

Not disclosed

HuishangOnly results announcement released, not full financial statements and footnotes

Not disclosed

Ningbo N/A N/A

Tianjin Decrease No more than 2%

Harbin Decrease Less than 2%

Zhongyuan Decrease Around 3%

Qingdao Core tier 1 CAR to decrease No more than 20 basis points

Jinzhou Decrease Around 2%

ChongqingOnly results announcement released, not full financial statements and footnotes

Not disclosed

Zhengzhou Decrease 1 billion or 3%

Changshu RCB N/A N/A

Jiutai RCBOnly results announcement released, not full financial statements and footnotes

Not disclosed

Chongqing RCB Not specified No more than 1%

Wuxi RCB N/A N/A

Jiangyin RCB N/A N/A

Zhangjiagang RCB N/A N/A

Guangzhou RCB Decrease Around 1%

Below is a summary of those who disclosed implications upon adoption of new standards in their 2017 annual reports:


April 2018

• Financial highlights of listed banks

• Banking and capital markets contacts

Appendix


April 2018

PwC

Financial highlights of listed banks (I)-Large Commercial Banks

2017 (In RMB million) ICBC CCB ABC BOC BOCOM PSBCOperating performance (Jan-Dec)

Operating income 726,502 621,659 537,041 483,278 196,011 224,864 Net interest income 522,078 452,456 441,930 338,389 127,366 188,115 Net fee & commission income 139,625 117,798 72,903 88,691 40,551 12,737 Other non-interest income 64,799 51,405 22,208 56,198 27,700 24,012

Operating expenses (364,660) (323,473) (301,683) (261,049) (112,938) (173,753)Tax and surcharges (7,465) (5,767) (4,953) (4,676) (2,481) (1,662)Business & administration expenses (177,723) (159,118) (177,010) (136,963) (60,405) (145,354)Allowance for impairment losses (127,769) (127,362) (98,166) (88,161) (31,469) (26,737)Other business expenses (51,703) (31,226) (21,554) (31,249) (18,583) 0

Operating profit 361,842 298,186 235,358 222,229 83,073 51,111 Profit before tax1 364,641 299,787 239,478 222,903 83,265 51,111

Income tax expense (77,190) (56,172) (46,345) (37,917) (12,574) (3,402)Net profit 287,451 243,615 193,133 184,986 70,691 47,709

Non-controlling interests 1,402 1,351 171 12,579 468 26 Profit attributable to shareholders 286,049 242,264 192,962 172,407 70,223 47,683

Financial Position (as of 31 Dec)Total assets 26,087,043 22,124,383 21,053,382 19,467,424 9,038,254 9,012,551

Loans and advances, net 13,892,966 12,574,473 10,316,311 10,644,304 4,354,499 3,541,571 Loans and advances 14,233,448 12,903,441 10,720,611 10,896,558 4,456,914 3,630,135 Less: Allowance for impairment losses (340,482) (328,968) (404,300) (252,254) (102,415) (88,564)

Investments2 5,756,704 5,181,648 6,152,743 4,554,722 2,528,276 3,167,033 Interbank assets3 1,834,242 708,598 1,175,900 1,060,456 782,468 754,731 Cash & deposits with central bank 3,613,872 2,988,256 2,896,619 2,303,020 938,571 1,411,962 Others assets 989,259 671,408 511,809 904,922 434,440 137,254

Total liabilities 23,945,987 20,328,556 19,623,985 17,890,745 8,361,983 8,581,194 Deposits from customers 19,226,349 16,363,754 16,194,279 13,280,464 4,930,345 8,062,659 Interbank liabilities4 2,752,887 1,794,913 1,574,580 1,925,354 1,849,877 237,214 Debt securities issued5 787,214 596,526 475,017 876,588 776,613 74,932 Due to central bank 456 547,287 465,947 1,035,797 532,867 0 Other liabilities 1,179,081 1,026,076 914,162 772,542 272,281 206,389

Total owners’ equity 2,141,056 1,795,827 1,429,397 1,576,679 676,271 431,357 Non-controlling interests 13,565 16,067 2,982 80,663 5,128 384

Total equity attributable to shareholders 2,127,491 1,779,760 1,426,415 1,496,016 671,143 430,973 Major financial indicators

Profitability(Jan-Dec)Return on average total assets (ROA) 1.14% 1.13% 0.95% 0.98% 0.81% 0.55%Return on weighted average equity (ROE) 14.35% 14.80% 14.57% 12.24% 11.40% 13.07%Net Interest Spread (NIS) 2.10% 2.09% 2.16% 1.29% 1.40% 2.46%Net Interest Margin (NIM) 2.22% 2.21% 2.28% 1.43% 1.52% 2.40%Cost to income ratio 24.46% 25.60% 32.96% 28.34% 30.82% 64.64%Asset quality (as of 31 Dec)Non-performing loan ratio 1.55% 1.49% 1.81% 1.45% 1.50% 0.75%Special mention loan ratio 3.95% 2.83% 3.27% 2.91% 2.93% 0.68%Overdue loan ratio 2.01% 1.29% 2.09% 1.86% 2.22% 0.97%90-day overdue loan ratio 1.26% 0.87% 1.24% 1.21% 1.71% 0.62%Allowance to total loans ratio 154.07% 171.08% 208.37% 159.18% 153.08% 324.77%Provision coverage ratio 2.39% 2.55% 3.77% 2.31% 2.30% 2.44%Capital adequacy(as of 31 Dec)Common Equity Tier 1 capital adequacy ratio 12.77% 13.09% 10.63% 11.15% 10.79% 8.60%Tier 1 capital adequacy ratio 13.27% 13.71% 11.26% 12.02% 11.86% 9.67%Capital adequacy ratio 15.14% 15.50% 13.74% 14.19% 14.00% 12.51%

Banking Newsletter

Note：1.Profit before tax equals operating profit minus other operating (net) income;2.Investment include: financial assets at fair value through profit or loss, available-for-sale financial assets, held-to-maturity investments and receivables;3.Interbank assets include: deposits with banks and other financial institutions, demolition of funds and buy back financial assets;4.Interbank liabilities include: deposits with banks and other financial institutions, capitalization of borrowed funds and repurchase of financial assets;5.Issued debt securities include: subordinated debt, two capital debt, convertible corporate bonds, green bonds, financial bonds, mixed capital debt,

deposit certificates and interbank deposits.

April 201857

PwC

Financial highlights of listed banks (II)-Joint-stock Commercial Banks

2017 (In RMB million) CIB CMB CMBC CITIC CEB PAB HXB CZBOperating performance (Jan-Dec)

Operating income 139,975 220,897 144,281 156,708 91,850 105,786 66,384 34,264 Net interest income 88,451 144,852 86,552 99,645 60,950 74,009 47,318 24,391 Net fee & commission income 38,739 64,018 47,742 46,858 30,774 30,674 18,407 8,013 Other non-interest income 12,528 12,027 9,357 10,205 126 1,103 616 1,860

Operating expenses (75,162) (130,357) (83,432) (104,339) (51,269) (75,563) (40,267) (20,557)Tax and surcharges (975) (2,152) (1,484) (1,660) (1,025) (1,022) (754) (232)Business & administration expenses (38,130) (66,772) (45,761) (46,892) (29,317) (31,616) (21,878) (10,951)Allowance for impairment losses (35,507) (59,926) (34,140) (55,787) (20,570) (42,925) (17,589) (9,374)Other business expenses (550) (1,507) (2,047) 0 (357) 0 (46) 0

Operating profit 64,813 90,540 60,849 52,369 40,581 30,223 26,117 13,707 Profit before tax1 64,753 90,680 60,562 52,276 40,646 30,157 26,253 13,707

Income tax expense (7,018) (20,042) (9,640) (9,398) (9,035) (6,968) (6,320) (2,734)Net profit 57,735 70,638 50,922 42,878 31,611 23,189 19,933 10,973

Non-controlling interests 535 488 1,109 312 66 0 114 23 Profit attributable to shareholders 57,200 70,150 49,813 42,566 31,545 23,189 19,819 10,950

Financial Position (as of 31 Dec)Total assets 6,416,842 6,297,638 5,902,086 5,677,691 4,088,243 3,248,474 2,508,927 1,536,752

Loans and advances, net 2,348,831 3,414,612 2,729,788 3,105,984 1,980,818 1,660,420 1,355,585 649,817 Loans and advances 2,430,695 3,565,044 2,804,307 3,196,887 2,032,056 1,704,230 1,394,082 672,879 Less: Allowance for impairment losses (81,864) (150,432) (74,519) (90,903) (51,238) (43,810) (38,497) (23,062)

Investments2 3,117,158 1,578,356 2,135,897 1,445,298 1,297,936 807,002 765,326 609,029 Interbank assets3 201,856 484,096 271,274 351,045 285,011 231,157 112,289 71,432 Cash & deposits with central bank 466,403 616,419 442,938 568,300 353,703 310,212 225,837 154,091 Others assets 282,594 204,155 322,189 207,064 170,775 239,683 49,890 52,382

Total liabilities 5,994,090 5,814,246 5,512,274 5,265,258 3,782,807 3,026,420 2,339,429 1,447,064 Deposits from customers 3,086,893 4,064,345 2,954,242 3,407,636 2,272,665 2,000,420 1,433,907 860,619 Interbank liabilities4 1,863,782 837,472 1,423,515 1,010,102 729,826 465,287 366,403 356,806 Debt securities issued5 662,958 296,477 513,996 441,244 445,396 342,492 369,689 190,552 Due to central bank 245,000 414,838 335,173 237,600 232,500 130,652 116,019 0 Other liabilities 135,457 201,114 285,348 168,676 102,420 87,569 53,411 39,087

Total owners’ equity 422,752 483,392 389,812 412,433 305,436 222,054 169,498 89,688 Non-controlling interests 5,857 3,182 10,842 12,795 676 0 1,443 1,493

Total equity attributable to shareholders 416,895 480,210 378,970 399,638 304,760 222,054 168,055 88,195 Major financial indicators

Profitability(Jan-Dec)Return on average total assets (ROA) 0.92% 1.15% 0.86% 0.74% 0.78% 0.75% 0.82% 0.76%Return on weighted average equity (ROE) 15.35% 16.54% 14.03% 11.67% 12.75% 11.62% 13.54% 14.64%*Net Interest Spread (NIS) 1.44% 2.29% 1.35% 1.64% 1.32% 2.19% 1.88% 1.62%Net Interest Margin (NIM) 1.73% 2.43% 1.50% 1.79% 1.52% 2.37% 2.01% 1.71%Cost to income ratio 27.24% 30.23% 31.72% 29.92% 31.92% 29.89% 32.96% 31.96%Asset quality (as of 31 Dec)Non-performing loan ratio 1.59% 1.61% 1.71% 1.68% 1.59% 1.70% 1.76% 1.15%Special mention loan ratio 2.31% 1.60% 4.06% 2.14% 2.97% 3.70% 4.60% 1.58%Overdue loan ratio 1.59% 1.74% 3.18% 2.86% 2.46% 3.54% 3.99% 1.07%90-day overdue loan ratio 1.02% 1.28% 2.32% 1.84% 1.65% 2.43% 3.37% 0.89%Allowance to total loans ratio 211.79% 262.11% 155.61% 169.44% 158.18% 151.08% 156.51% 296.94%Provision coverage ratio 3.37% 4.22% 2.66% 2.84% 2.52% 2.57% 2.76% 3.43%Capital adequacy(as of 31 Dec)Common Equity Tier 1 capital adequacy ratio 9.07% 12.06% 8.63% 8.49% 9.56% 8.28% 7.73% 8.29%Tier 1 capital adequacy ratio 9.67% 13.02% 8.88% 9.34% 10.61% 9.18% 8.85% 9.96%Capital adequacy ratio 12.19% 15.48% 11.85% 11.65% 13.49% 11.20% 11.78% 12.21%




April 2018

PwC

Financial highlights of listed banks (III)-City Commercial Banks

2017 (In RMB million) Shanghai Jiangsu Ningbo Shengjing Huishang Jinzhou Tianjing Harbin ZhongyuanZhengzhou Chongqing Qingdao Gansu

Operating performance (Jan-Dec)

Operating income 33,125 33,839 25,314 13,250 22,508 18,806 10,143 14,134 12,815 10,213 10,015 5,568 8,053

Net interest income 19,117 27,815 16,389 12,076 20,197 18,533 8,401 11,307 12,201 8,106 8,115 4,802 7,485

Net fee & commission income 6,256 5,779 5,900 1,613 2,844 737 2,033 2,445 770 1,865 1,680 829 377

Other non-interest income 7,723 209 3,012 (439) (532) (464) (291) 381 (155) 242 220 (64) 191

Operating expenses (17,139) (20,045) (15,134) (5,021) (13,033) (6,753) (5,234) (7,006) (7,787) (4,710) (5,298) (3,198) (3,576)

Tax and surcharges (344) (372) (247) (144) (156) (170) (119) (145) (120) (79) (95) (55) (55)

Business & administration expenses (8,105) (9,746) (8,767) (3,474) (5,674) (3,138) (2,984) (4,199) (5,639) (2,674) (2,204) (1,764) (1,998)

Allowance for impairment losses (8,671) (9,923) (6,108) (1,403) (7,203) (3,445) (2,132) (2,662) (2,028) (1,957) (2,999) (1,379) (1,523)

Other business expenses (19) (3) (12) 0 0 0 0 0 0 0 0 0 (0)

Operating profit 15,986 13,794 10,180 8,229 9,476 12,053 4,909 7,128 5,028 5,503 4,717 2,370 4,477

Profit before tax1 16,082 13,790 10,163 8,229 9,613 12,053 4,883 7,128 5,028 5,547 4,895 2,370 4,479

Income tax expense (746) (1,774) (808) (655) (1,801) (2,963) (940) (1,819) (1,123) (1,214) (1,131) (466) (1,115)

Net profit 15,337 12,016 9,356 7,574 7,812 9,090 3,943 5,309 3,906 4,334 3,764 1,904 3,363

Non-controlling interests 8 141 22 (6) 197 113 27 60 67 54 38 3 5

Profit attributable to shareholders 15,328 11,875 9,334 7,580 7,615 8,977 3,916 5,249 3,839 4,280 3,726 1,900 3,358

Financial Position (as of 31 Dec)

Total assets 1,807,767 1,770,551 1,032,042 1,030,617 908,100 723,418 701,914 564,255 521,990 435,829 422,763 306,276 271,148

Loans and advances, net 643,191 727,844 332,199 271,783 305,209 209,085 232,925 230,647 191,709 124,456 172,162 95,515 125,255

Loans and advances 664,022 747,289 346,201 279,513 314,694 215,121 240,169 237,398 198,903 128,456 177,207 98,061 130,284

Less: Allowance for impairment losses (20,830) (19,445) (14,001) (7,731) (9,486) (6,036) (7,244) (6,751) (7,194) (4,001) (5,045) (2,547) (5,029)

Investments2 833,203 753,024 521,386 566,366 418,777 425,372 363,453 204,494 226,924 222,674 159,429 164,589 70,105

Interbank assets3 161,775 97,096 32,694 90,082 49,281 15,690 29,656 25,402 23,276 24,429 37,000 7,575 40,632

Cash & deposits with central bank 136,064 135,439 90,194 84,202 92,358 52,118 57,372 69,533 64,369 45,635 43,727 27,098 29,084

Others assets 33,533 57,147 55,569 18,185 42,476 21,152 18,507 34,180 15,712 18,635 10,444 11,499 6,071

Total liabilities 1,660,326 1,657,723 974,836 978,362 848,888 663,253 657,158 521,846 475,899 402,390 390,303 280,153 254,535

Deposits from customers 923,585 1,007,833 565,254 473,581 512,808 342,264 357,858 378,258 306,708 255,407 238,705 160,084 192,231

Interbank liabilities4 459,029 313,039 167,887 280,599 196,173 187,068 150,452 28,212 86,178 65,368 54,025 42,576 27,046

Debt securities issued5 168,148 232,342 171,499 140,920 115,180 89,565 118,688 91,334 74,129 73,170 88,727 68,633 23,961

Due to central bank 81,605 64,560 2,500 48,160 1,500 308 7,505 521 1,323 1,600 1,746 584 5,290

Other liabilities 27,959 39,949 67,696 35,102 23,226 44,048 22,655 23,521 7,562 6,844 7,100 8,276 6,007

Total owners’ equity 147,441 112,828 57,206 52,256 59,212 60,165 44,756 42,409 46,091 33,439 32,460 26,123 16,613

Non-controlling interests 456 1,683 117 574 1,509 3,934 672 1,148 822 1,233 1,508 493 32

Total equity attributable to shareholders 146,985 111,145 57,089 51,681 57,703 56,231 44,083 41,260 45,269 32,206 30,952 25,630 16,581

Major financial indicators

Profitability(Jan-Dec)

Return on average total assets (ROA) 0.86% 0.71% 0.78% 0.98% 0.94% 0.58% 1.44% 0.96% 0.82% 1.08% 0.95% 0.65% 1.30%

Return on weighted average equity (ROE) 12.63% 13.72% 15.55% 19.02% 14.87% 9.13% 18.85% 13.50% 9.60% 18.74% 14.95% 10.73% 22.46%

Net Interest Spread (NIS) 1.38% 1.44% 1.36% 2.17% 2.18% 0.82% 2.58% 2.07% 2.57% 1.94% 1.89% 1.56% 2.74%

Net Interest Margin (NIM) 1.25% 1.58% 1.50% 1.94% 2.31% 1.25% 2.88% 2.26% 2.76% 2.08% 2.11% 1.68% 2.91%

Cost to income ratio 24.47% 28.80% 26.22% 34.63% 25.21% 29.42% 16.69% 29.71% 44.00% 26.18% 22.00% 31.68% 24.81%

Asset quality (as of 31 Dec)

Non-performing loan ratio 1.15% 1.41% 0.82% 1.49% 1.05% 1.04% 1.56% 1.70% 1.83% 1.50% 1.35% 1.69% 1.74%

Special mention loan ratio 2.08% 2.54% 0.68% 1.70% 1.43% 2.31% 4.43% 2.85% 4.57% 3.32% 3.91% 5.45% 5.51%

Overdue loan ratio 1.05% 1.86% 0.78% 1.90% 2.16% 1.44% 2.83% 3.93% 5.31% 5.35% 4.56% 3.58% 4.12%

90-day overdue loan ratio 0.80% 1.36% 0.64% 1.46% 1.32% 1.03% 1.92% 1.96% 4.05% 2.57% 2.16% 2.00% 2.55%

Allowance to total loans ratio 272.52% 184.25% 493.26% 186.02% 287.44% 268.64% 193.81% 167.24% 197.50% 207.71% 210.16% 153.52% 222.00%

Provision coverage ratio 3.14% 2.60% 4.04% 2.77% 3.01% 2.81% 3.02% 2.84% 3.62% 3.11% 2.85% 2.60% 3.86%

Capital adequacy(as of 31 Dec)

Common Equity Tier 1 capital adequacy ratio 10.69% 8.54% 8.61% 9.04% 8.48% 8.44% 8.64% 9.72% 12.15% 7.93% 8.62% 8.71% 8.71%

Tier 1 capital adequacy ratio 12.37% 10.40% 9.41% 9.04% 9.46% 10.24% 8.65% 9.74% 12.16% 10.49% 10.24% 12.57% 8.71%

Capital adequacy ratio 14.33% 12.62% 13.58% 12.85% 12.19% 11.67% 10.74% 12.25% 13.15% 13.53% 13.60% 16.60% 11.54%


April 2018

Note：1.Profit before tax equals operating profit minus other operating (net) income;2. Investment include: financial assets at fair value through profit or loss, available-for-sale financial assets, held-to-maturity investments and receivables;3. Interbank assets include: deposits with banks and other financial institutions, demolition of funds and buy back financial assets;4. Interbank liabilities include: deposits with banks and other financial institutions, capitalization of borrowed funds and repurchase of financial assets;5. Issued debt securities include: subordinated debt, two capital debt, convertible corporate bonds, green bonds, financial bonds, mixed capital debt, deposit certificates and

interbank deposits.

PwC

Financial highlights of listed banks (IV)-Rural Commercial Banks

2017 (In RMB million) ChongqingRCB

Guangzhou RCB

JiutaiRCB

Changshu RCB

WuxiRCB

JiangyinRCB

ZhangjiagangRCB

Operating performance (Jan-Dec)Operating income 24,000 13,479 5,840 4,997 2,851 2,507 2,417

Net interest income 21,501 11,695 4,736 4,324 2,685 2,100 2,125 Net fee & commission income 2,296 2,291 615 424 163 53 114 Other non-interest income 204 (507) 490 194 3 349 175

Operating expenses (12,040) (5,952) (3,778) (3,339) (1,600) (1,624) (1,699)Tax and surcharges (188) (163) (65) (40) (29) (23) (18)Business & administration expenses (8,141) (5,001) (2,965) (1,855) (855) (960) (877)Allowance for impairment losses (3,711) (788) (748) (1,443) (715) (635) (804)Other business expenses 0 0 0 (1) (2) (6) 0

Operating profit 11,960 7,527 2,062 1,658 1,251 883 721 Profit before tax1 11,960 7,527 2,085 1,668 1,226 772 751

Income tax expense (2,951) (1,636) (447) (346) (233) (14) 7 Net profit 9,008 5,891 1,638 1,322 993 758 758

Non-controlling interests 72 182 363 58 (2) (50) (9)Profit attributable to shareholders 8,936 5,709 1,276 1,264 995 808 767

Financial Position (as of 31 Dec)Total assets 905,778 735,714 187,009 145,825 137,125 109,403 103,173

Loans and advances, net 324,110 285,702 75,015 74,919 64,309 53,285 47,492 Loans and advances 338,347 294,013 77,350 77,811 66,074 55,853 49,111 Less: Allowance for impairment losses (14,237) (8,312) (2,335) (2,892) (1,764) (2,569) (1,619)

Investments2 317,487 234,969 63,458 48,197 46,816 40,886 38,340 Interbank assets3 150,465 97,444 14,900 3,322 6,586 1,825 4,078 Cash & deposits with central bank 97,012 103,767 24,118 15,633 16,426 10,406 10,199 Others assets 16,704 13,832 9,518 3,754 2,987 3,000 3,063

Total liabilities 840,532 687,236 170,358 134,716 127,773 100,049 94,784 Deposits from customers 572,184 488,672 129,882 99,005 106,827 79,308 70,544 Interbank liabilities4 116,013 70,872 16,023 8,677 8,983 12,780 15,540 Debt securities issued5 103,901 101,384 20,040 20,357 6,957 3,249 2,877 Due to central bank 31,338 1,131 1,576 2,910 300 1,438 3,250 Other liabilities 17,096 25,178 2,838 3,767 4,706 3,275 2,573

Total owners’ equity 65,246 48,478 16,651 11,109 9,352 9,354 8,389 Non-controlling interests 1,557 2,433 4,099 641 98 205 110

Total equity attributable to shareholders 63,689 46,045 12,552 10,468 9,254 9,149 8,279 Major financial indicators

Profitability(Jan-Dec)Return on average total assets (ROA) 1.05% 0.84% 0.87% 0.96% 0.76% 0.71% 0.78%Return on weighted average equity (ROE) 15.61% 13.94%* 11.25%* 12.44%* 11.04% 9.10% 9.43%Net Interest Spread (NIS) 2.43% 1.58% 2.19% 3.30% 2.18% 2.22% 2.03%Net Interest Margin (NIM) 2.62% 1.70% 2.38% 3.46% 2.18% 2.23% 2.26%Cost to income ratio 33.92% 37.11% 50.77% 37.13% 29.98% 38.29% 36.28%Asset quality (as of 31 Dec)Non-performing loan ratio 0.98% 2.39% 1.38% 1.78% 1.51% 1.14% 1.76%Special mention loan ratio 2.50% 0.00% 1.49% 6.42% 2.41% 2.66% 2.27%Overdue loan ratio 1.48% 2.55% 1.44% 1.57% 2.03% 1.09% 3.24%90-day overdue loan ratio 1.02% 2.19% 1.34% 1.10% 1.42% 0.80% 2.62%Allowance to total loans ratio 431.24% 192.13% 193.77% 185.60% 186.78% 325.93% 171.49%Provision coverage ratio 4.21% 4.60% 2.67% 3.30% 2.83% 3.72% 3.02%Capital adequacy(as of 31 Dec)Common Equity Tier 1 capital adequacy ratio 10.39% 10.69% 9.47% 9.88% 9.93% 12.94% 11.82%Tier 1 capital adequacy ratio 10.40% 10.72% 9.66% 9.92% 9.93% 12.95% 11.82%Capital adequacy ratio 13.03% 12.00% 12.20% 12.97% 14.12% 14.14% 12.93%


April 2018



PwC

Banking and capital markets contacts

Assurance Advisory Tax

Jimmy Leung – Shanghai James Chang – Beijing Oliver Kang – Beijing

+86 (21) 2323 3355 +86 (10) 6533 2755 +86 (10) 6533 3012

[email protected] [email protected] [email protected]

Margarita Ho – Beijing Ying Zhou – Beijing Matthew Wong – Shanghai

+86 (10) 6533 2368 +86 (10) 6533 2860 +86 (21) 2323 3052


Richard Zhu – Beijing Yang Guo – Beijing Florence Yip – Hong Kong

+86 (10) 6533 2236 +86 (10) 6533 2012 +852 2289 1833


Linda Yip – Beijing Jeff Hao – Beijing

+86 (10) 6533 2300 +86 (10) 6533 7942

[email protected] [email protected]

Michael Hu – Shanghai Jianping Wang – Shanghai

+86 (21) 2323 2718 +86 (21) 2323 5682


Shirley Yeung – Guangzhou Matthew Phillips – Hong Kong

+86 (20) 3819 2218 +852 2289 2303


Vincent Yao – Shenzhen Mary Wong – Hong Kong

+86 (755) 8261 8293 +852 2289 2587


Peter Li – Hong Kong Chris Chan – Hong Kong

+852 2289 2982 +852 2289 2824


James Tam – Hong Kong

+852 2289 2706

[email protected]

Raymond Poon – Hong Kong

+852 2289 1223

[email protected]


April 2018

www.pwccn.comThis content is only for general information purposes only, and should not be as a substitute for consultation with professional advisors.

© 2018 PricewaterhouseCoopers Zhong Tian LLP. All rights reserved. PwC refers to the China member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

banking newsletter - pwc · the banking newsletter, pwc’s analysis of china’s listed banks and...

Documents