listed banks in china: 2016 review and...

Listed banks in China: 2016 review and outlook / A

Listed banks in China:2016 review and outlook

B / Listed banks in China: 2016 review and outlook

This is the 10th EY annual report on China’s listed banks. The purpose of this annual report is to provide an outlook on the direction of the future development of China’s banking industry based on observations of the businesses, operating models and regulatory environment of the 37 listed banks in mainland China.

5large commercial banks

• ►Industrial and Commercial Bank of China (ICBC)

• China Construction Bank (CCB)

• Agricultural Bank of China (ABC)

• Bank of China (BOC)

• Bank of Communications (BOCOM)

9national joint-stock commercial banks

• ►China Merchants Bank (CMB)

• Industrial Bank (IB)

• Shanghai Pudong Development Bank (SPDB)

• China Minsheng Bank (CMBC)

• China CITIC Bank (CITIC)

• China Everbright Bank (CEB)

• Ping An Bank (PAB)

• Huaxia Bank (HX)

• China Zheshang Bank (CZB)

22city and rural commercial banks

• ►Bank of Beijing (BOB)

• ►Bank of Shanghai (BSH)

• ►Bank of Jiangsu (BJS)

• ►Bank of Nanjing (BONJ)

• ►Bank of Jinzhou (BJZ)

• ►Chongqing Rural Commercial Bank (CQRCB)

►• ►Bank of Ningbo (BONB)

• ►Huishang Bank (HSB)

• ►Shengjing Bank (SJB)

• ►Harbin Bank (HRB)

• ►Bank of Tianjin (BTJ)

• ►Bank of Zhengzhou (BZZ)

• ►Bank of Hangzhou (BHZ)

►• ►Bank of Guiyang (BGY)

• ►Bank of Chongqing (BCQ)

• ►Jilin Jiutai Rural Commercial Bank (JTRCB)

• ►Bank of Qingdao (BQD)

• ►Changshu Rural Commercial Bank (CSRCB)

• ►Wuxi Rural Commercial Bank (WXRCB)

• ►Jiangyin Rural Commercial Bank (JYRCB)

►• ►Rural Commercial Bank of Zhangjiagang (ZJGRCB)

• ►Wujiang Rural Commercial Bank (WJRCB)

And

• Postal Savings Bank of China (PSBC)

The data contained in this report, unless otherwise noted, are sourced from the annual reports published by the listed banks. Apart from the data for CZB, BJZ, CQRCB, HSB, SJB, HRB, BTJ, BZZ, BCQ, JTRCB, BQD and PSBC, which are collected from financial statements prepared under the International Financial Reporting Standards (IFRS), data for other banks are collected from their financial statements prepared under the Chinese Accounting Standards for Business Enterprises. For comparisons, we have made necessary adjustments to the classification of certain data in order to make them more comparable. For the listed banks that restated their 2014 and 2015 financial statements, the restated figures are used in the report. Unless otherwise noted, the averages of all indicators of the listed banks are weighted averages.

The report covers the

37listed banks in mainland China

Introduction

Listed banks in China: 2016 review and outlook / C

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ContentsExecutive summary

Decrease in loan loss provision and rebound in profit growth

Accelerated growth in personal housing loans and increased proportion of investment assets

Persisting credit risk due to rising NPL balances and ratios

Risk contagion prevention and liquidity management enhancement

Acceleration of capital replenishment and initial success of “light model” transformation

New benefits and opportunities brought by “Belt and Road” and other national strategies

Exploring the future shape of banking by tapping into FinTech

Improved efficiency through outlet transformation and continued efforts to propel operational reform

Outlook: Enhanced risk prevention and control, and continued innovation and transformation

1 / Listed banks in China: 2016 review and outlook

Executive summary

Listed banks in China: 2016 review and outlook / 2

In 2016, the listed banks in China experienced a continued contraction in net interest margin, year-on-year (y-o-y) decline in net interest income, and slower growth in net fee and commission income. However, at the same time, their cost-to-income ratios remained stable and loan provisions posted slower growth. The listed banks collectively realized a net profit totaling RMB 1,453.175 billion in 2016, up by 3.65% y-o-y, growing faster by 0.8 percentage point as compared to the y-o-y growth of 2.85% in 2015.

Over the past two years, the slower economic growth and lower return on investment in the real economy had resulted in a reduced supply of high-quality assets under the economic “new normal.” In 2016, the listed banks increased their efforts in adjusting the asset structure, thus seeing rapid growth and increased proportion of personal housing loans and government bond investments.

Both non-performing loan (NPL) balances and NPL ratios of the listed banks continued to rise during the year due to a combination of macroeconomic slowdown, increased risk exposure to the industries burdened with excess capacity, and adjustments to commodity prices. By the end of 2016, the NPL balances of the listed banks posted slower growth, and special-mention loan ratios and overdue loan ratios fell. Nonetheless, the overall asset quality of the listed banks remained under significant pressure due to slower economic growth and ongoing supply-side structural reform.

Given the challenge of growing NPLs and disposal in undiversified ways, the listed banks have stepped up efforts in exploring and implementing new disposal models. Most notably, the market-based securitization of non-performing assets and debt-for-equity swaps have been adopted gradually by the listed banks.

The listed banks faced a range of risks and challenges as they endeavored to accelerate business transformation, enhance integrated financial services capabilities, and expand international footprint. The listed banks also had to prevent risk contagion during the business transformation, further enhance risk management, and improve liquidity risk management policies to better serve the real economy.

The listed banks also faced pressure on capital adequacy levels due to sluggish net profit growth, increased credit risk exposure, and more stringent regulatory requirements. To address the capital issues, the listed banks continued to move forward with external financing and enhanced capital base — primarily through initial public offerings (IPO) of ordinary shares, and rights issue of ordinary shares and preference shares in both domestic and overseas securities markets. Meanwhile, some listed banks looked inward and stepped up capital replenishment with internally-generated capital, achieving good results in the process of exploring a capital-saving development model. Nonetheless, the transformation of business model to “operation-light bank” is yet to complete, and the listed banks need to step up efforts on this journey.

The listed banks seized development opportunities arising from the implementation of key national strategies such as the Belt and Road (B&R) initiative, RMB internationalization and supply-side structural reform, and sought new drivers for business growth.

FinTech experienced rapid development in 2016. While further promoting the development and upgrading of internet finance channels, such as internet banking, mobile banking, WeChat banking and direct banking, the listed banks in China competed with one another to integrate FinTech into banking operations and utilized new technologies or business models to transform and upgrade the existing banking businesses. The listed banks have been actively deploying new FinTech such as big data, cloud computing, blockchain and artificial intelligence to develop more targeted marketing plans and more granular risk management plans, and to shape brand new core competencies.

With the rapid development of the mobile internet technology and evolution of consumer demands and habits, particularly against the backdrop of narrowing net interest margin and increased pressure on banking performance, the listed banks continued to adopt the customer-centric approach in 2016. The banks strategically accelerated the establishment and optimization of outlets across key regions to drive “smart and light” outlet transformation and promote the integration of online and offline channels to address customers’ “last mile” service needs at lower costs. Outlet transformation was accompanied by adjustments to the human resource structure. The listed banks switched some employees to other job duties through training to improve the efficiency of human resources and the vitality of the organization.

The year 2017 is an important year for the implementation of the 13th Five-Year Plan and a year embracing the further deepening of the supply-side structural reform. China’s banking industry is still undergoing critical transformation, in which opportunities and challenges coexist. The listed banks in China continue to embrace the historical opportunities arising from the implementation of key national strategies such as the B&R initiative, supply-side structural reform, the Beijing-Tianjin-Hebei integration initiative, the establishment of Xiongan New Area and the Yangtze Economic Belt initiative. They also continue to utilize the growth momentum unleashed by technological innovation, transformation and upgrading, to realize more efficient development and higher value return. In addition, the banks should strengthen risk prevention and control during the transformation to achieve long-term sustainable development.

Executive summary

Decrease in loan loss provision and rebound in profit growth 1


In 2016, the listed banks in China experienced a continued contraction in net interest margin, y-o-y decline in net interest income, and slower growth in net fee and commission income, while their cost-to-income ratios remained stable and loan provisions posted slower growth. The listed banks collectively realized a net profit of RMB1,453.18 billion in 2016, growing by 3.65% y-o-y, up by 0.8 percentage points from the 2.85% growth in 2015.

The net profit of the five large commercial banks grew by 1.46%, increasing by 0.77 percentage points from that of 2015. Each of the nine national joint-stock banks reported a rise in net profit. Particularly, CZB realized the fastest growth in net profit at 43.99%, increasing by 5.63 percentage points from that of 2015. City and rural commercial banks saw their net profit grow by 13.58%, the fastest-growing group among the listed banks, despite slowing down by 1.48 percentage points from that of the prior year-end. Twenty listed city and rural commercial banks reported a positive growth in net profit while the other two city and rural commercial banks exhibited a decline. PSCB’s net profit increased by 14.11% y-o-y, up by 7.08 percentage points from that of 2015.

Trend of net profit growth of listed banks

City and rural commercial banks

Large commercial banksx

PSBC

National joint-stock commercial banks

All listed banks

2014 2015 2016

20%

15%

10%

5%

0%xx

x

15.06%

7.03%

5.18%

2.85%0.69%

14.11%13.58%

5.52%3.65%1.46%

15.72%

10.71%9.77%8.12%6.52%

Source: EY (calculated based on the data published in the annual reports and prospectuses of the listed banks)

3.65%



Net profit amount and growth rate* (RMB million)

2014 2015 2016

Amount Growth rate Amount Growth rate Amount Growth rate

ICBC 276,286 5.07% 277,720 0.52% 279,106 0.50%CCB 228,247 6.10% 228,886 0.28% 232,389 1.53%ABC 179,510 8.00% 180,774 0.70% 184,060 1.82%BOC 177,198 8.22% 179,417 1.25% 184,051 2.58%BOCOM 66,035 5.72% 66,831 1.21% 67,651 1.23%Large commercial banks

927,276 6.52% 933,628 0.69% 947,257 1.46%

CMB 56,049 8.32% 58,018 3.51% 62,380 7.52%IB 47,530 14.50% 50,650 6.56% 54,327 7.26%SPDB 47,360 14.95% 50,997 7.68% 53,678 5.26%CMBC 45,567 5.28% 47,022 3.19% 48,778 3.73%CITIC 41,454 4.37% 41,740 0.69% 41,786 0.11%CEB 28,928 8.13% 29,577 2.24% 30,388 2.74%PAB 19,802 30.01% 21,865 10.42% 22,599 3.36%HX 18,023 16.19% 18,952 5.15% 19,756 4.24%CZB 5,096 3.98% 7,051 38.36% 10,153 43.99%National joint-stock commercial banks

309,809 10.71% 325,872 5.18% 343,845 5.52%

BOB 15,646 16.25% 16,883 7.91% 17,923 6.16%BSH 11,400 21.79% 13,043 14.41% 14,325 9.83%BJS 8,699 6.10% 9,505 9.27% 10,637 11.91%BONJ 5,656 24.83% 7,066 24.93% 8,346 18.11%BJZ 2,123 56.68% 4,908 131.18% 8,199 67.05%CQRCB 6,813 13.27% 7,228 6.09% 8,001 10.69%BONB 5,634 16.24% 6,567 16.56% 7,823 19.13%HSB 5,676 15.23% 6,212 9.44% 6,996 12.62%SJB 5,424 10.94% 6,224 14.75% 6,878 10.51%HRB 3,841 13.94% 4,510 17.42% 4,962 10.02%BTJ 4,429 28.94% 4,932 11.36% 4,518 -8.39%BZZ 2,463 29.50% 3,356 36.26% 4,045 20.53%BHZ 3,511 -7.58% 3,705 5.53% 3,987 7.61%BGY 2,447 35.27% 3,240 32.41% 3,689 13.86%BQD 2,827 21.38% 3,170 12.13% 3,502 10.47%JTRCB 1,231 126.70% 1,402 13.89% 2,316 65.19%BQD 1,495 30.91% 1,814 21.34% 2,089 15.16%CSRCB 1,000 0.40% 983 -1.70% 1,055 7.32%WXRCB 918 -1.50% 819 -10.78% 884 7.94%JYRCB 851 -17.14% 815 -4.23% 767 -5.89%ZJGRCB 721 -30.14% 681 -5.55% 696 2.20%WJRCB 777 -20.14% 612 -21.24% 659 7.68%City and rural commercial banks

93,582 15.72% 107,675 15.06% 122,297 13.58%

PSBC 32,567 9.77% 34,857 7.03% 39,776 14.11%All listed banks 1,363,234 8.12% 1,402,032 2.85% 1,453,175 3.65%

Source: Annual reports and prospectuses published by the listed banks*Net profits of the listed banks are shown in RMB million, on which the calculation of growth rates is based



Continued decline in NIM

In 2016, the net interest margin (NIM) of the listed banks continued to narrow, falling by 32 basis points from that of 2015. Specifically, NIM of PSCB contracted by 54 basis points, the sharpest fall among the listed banks. NIM of large commercial banks, national joint-stock banks and city and rural commercial banks fell by 36 basis points, 30 basis points and 32 basis points, respectively.

The decrease in NIM of the listed banks was driven mainly by two factors. On the one hand, implications of interest rate adjustment were felt by the market as rates were reset on interest-bearing assets and liabilities in 2016, following the effort by the People’s Bank of China (PBOC) to cut down the benchmark lending rates on five separate occasions and to completely remove deposit rate ceilings in 2015. On the other hand, interest income of the listed banks posted a decline due to the impact of the Circular on Comprehensively Promoting the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax issued by the Ministry of Finance (MOF) and State Administration of Taxation (SAT) (Cai Shui [2016] No. 36). The Circular stipulated that from 1 May 2016, business tax (BT), originally imposed on banking operations, would be superseded by value-added tax (VAT), and taxable income and expense should be recognized exclusive of tax under the principle of separation of price and tax. In their respective 2016 annual reports, ICBC and BOCOM disclosed the impact of the “VAT reform” on NIM, which stood at 2.16% and 1.88% respectively, falling by 31 basis points and 34 basis points, respectively, y-o-y (or 21 basis points and 23 basis points, respectively, when excluding the impact of “VAT reform”).

Changes in NIM of the listed banks

2014 2015 2016

3.0%

2.5%

2.0%x

x

x

2.92%2.78%

2.68%2.59%

2.46%

2.42% 2.36%2.27%2.24%2.16%2.06%

2.83%2.73%

2.60%2.54%

Cost of credit of listed banks (%)

2014 2015 2016

ICBC 2.66% 2.47% 2.16%CCB 2.80% 2.63% 2.20%ABC 2.92% 2.66% 2.25%BOC 2.25% 2.12% 1.83%BOCOM 2.36% 2.22% 1.88%Large commercial banks**

2.60% 2.42% 2.06%

CMB 2.64% 2.77% 2.50%IB 2.48% 2.45% 2.07%SPDB 2.50% 2.45% 2.03%CMBC 2.59% 2.26% 1.86%CITIC 2.40% 2.31% 2.00%CEB 2.30% 2.25% 1.78%PAB 2.60% 2.81% 2.75%HX 2.69% 2.56% 2.42%CZB 2.62% 2.31% 2.07%National joint-stock commercial banks**

2.54% 2.46% 2.16%

BOB Not disclosed

►► Not disclosed►

►► Not disclosed►

BSH 2.21% 2.02% 1.73%BJS 2.45% 1.94% 1.70%BONJ 2.59% 2.61% 2.16%BJZ 2.63% 3.51% 3.67%CQRCB 3.37% 3.20% 2.74%BONB 2.51% 2.38% 1.95%HSB 2.74% 2.71% 2.59%SJB 2.32% 2.14% 1.75%HRB 2.71% 2.68% 2.65%BTJ 2.06% 2.08% 1.76%BZZ 3.31% 3.12% 2.69%BHZ 2.52% 2.26% 1.98%BGY 4.05% 3.62% 2.88%BCQ 2.81% 2.52% 2.38%JTRCB 3.40% 3.01% 2.67%BQD 2.43% 2.36% 2.23%CSRCB 3.08% 3.04% 3.22%WXRCB 2.40% 2.00% 1.96%JYRCB 2.95% 2.77% 2.34%ZJGRCB 3.02% 2.80% 2.24%WJRCB 3.90% 3.46% Not

disclosedCity and rural commercial bank**

2.83% 2.68% 2.36%

PSBC 2.92% 2.78% 2.24%All listed banks** 2.73% 2.59% 2.27%

Source: Annual reports and prospectuses published by the listed banks**Only including the banks that separately disclosed this ratio**Simple arithmetic average

32 basis points



PSBC


All listed banks

*Only including the banks that separately disclosed this ratioSource: EY (calculated based on the data published in the annual reports and prospectuses of the listed banks)



Y-o-y decrease in net interest income

In 2016, the net interest income of the listed banks decreased by 4.65% y-o-y due to the narrowing NIM. Specifically, net interest income of large commercial banks and PSCB decreased by 4.65% and 12.09%, respectively, y-o-y, while the net interest income of national joint-stock banks and city and rural commercial banks increased by 0.14% and 9.42%, respectively, y-o-y.

The five large commercial banks reported a drop in net interest income by 6 percentage points to 9 percentage points. Out of the nine national joint-stock banks, four banks reported a decline in net interest income and five banks saw improvement. Specifically, the net interest income of PAB and CZB rose by 11.61% and 22.55%, respectively, mainly due to growing interest-bearing assets (in 2016, the interest-bearing assets of PAB and CZB grew by 13.71% and 37.33%, respectively). Out of the 22 city and rural commercial banks, six banks experienced a decline in net interest income and 16 banks reported growth.

Changes in net interest income of the listed banks

20.52%

2014 2015

22%

17%

12%

7%

2%

-3%

-8%

-13%

x

x

x

20.75%18.76%

9.42%

0.14%

-4.65%-7.78%

-12.09%

15.05%

7.32%

3.19%

6.82%

15.46%13.81%11.91%

2016

4.65%



PSBC


All listed banks



Net interest income and growth rate* (RMB million)

2014 2015 2016


ICBC 493,522 11.32% 507,867 2.91% 471,846 -7.09%CCB 437,398 12.28% 457,752 4.65% 417,799 -8.73%ABC 429,891 14.27% 436,140 1.45% 398,104 -8.72%BOC 321,102 13.23% 328,650 2.35% 306,048 -6.88%BOCOM 134,776 3.15% 144,172 6.97% 134,871 -6.45%Large commercial banks

1,816,689 11.91% 1,874,581 3.19% 1,728,668 -7.78%

CMB 117,202 18.49% 137,586 17.39% 134,595 -2.17%IB 95,560 11.32% 119,834 25.40% 112,319 -6.27%SPDB 98,183 15.27% 113,009 15.10% 108,120 -4.33%CMBC 92,136 10.96% 94,268 2.31% 94,684 0.44%CITIC 94,741 10.57% 104,433 10.23% 106,138 1.63%CEB 58,259 14.54% 66,459 14.08% 65,288 -1.76%PAB 53,046 30.37% 68,461 29.06% 76,411 11.61%HX 46,241 18.87% 46,083 -0.34% 48,989 6.31%CZB 14,535 30.77% 20,586 41.63% 25,229 22.55%National joint-stock commercial banks

669,903 15.46% 770,719 15.05% 771,773 0.14%

BOB 31,285 19.02% 35,785 14.38% 37,525 4.86%BSH 23,474 23.16% 26,682 13.67% 25,998 -2.56%BJS 22,339 12.72% 23,971 7.31% 25,245 5.31%BONJ 13,435 47.70% 18,829 40.15% 21,230 12.75%BJZ 5,628 47.29% 10,804 91.97% 15,448 42.98%CQRCB 18,349 16.85% 20,167 9.91% 19,405 -3.78%BONB 13,355 18.62% 15,617 16.94% 17,060 9.24%HSB 11,423 18.95% 14,843 29.94% 18,340 23.56%SJB 9,901 26.22% 11,949 20.68% 13,218 10.62%HRB 8,398 23.17% 9,633 14.71% 11,573 20.14%BTJ 9,149 16.83% 10,679 16.72% 10,359 -3.00%BZZ 5,284 28.82% 6,907 30.72% 8,300 20.17%BHZ 9,296 1.51% 11,037 18.73% 11,697 5.98%BGY 5,216 29.56% 6,826 30.87% 8,401 23.07%BCQ 6,232 20.33% 7,002 12.36% 7,677 9.64%JTRCB 2,566 75.87% 3,372 31.41% 4,533 34.43%BQD 3,596 16.45% 4,114 14.40% 5,008 21.73%CSRCB 2,816 23.94% 3,168 12.50% 4,014 26.70%WXRCB 2,118 8.06% 2,163 2.12% 2,314 6.98%JYRCB 2,253 3.49% 2,371 5.24% 2,262 -4.60%ZJGRCB 2,098 8.48% 2,000 -4.67% 1,981 -0.95%WJRCB 2,430 6.39% 2,238 -7.90% 2,143 -4.24%City and rural commercial banks

210,641 20.52% 250,157 18.76% 273,731 9.42%

PSBC 167,816 20.75% 179,259 6.82% 157,586 -12.09%All listed banks 2,865,049 13.81% 3,074,716 7.32% 2,931,758 -4.65%

Source: Annual reports and prospectuses published by the listed banks*Net interest income of listed banks are shown in RMB million, on which the calculation of growth rates is based



Slower growth in net fee and commission income

In 2016, income from the bank card business, agency business (including wealth management), custodian business and other asset custody business grew by 13.55%, 24.96% and 26.21%, respectively, y-o-y, decelerating from that of 2015. Particularly, as a traditional business of commercial banks, the bank card business not only plays a key part in contributing fee and commission income of large commercial banks and national joint-stock banks, but also serves as a source of stable growth in such income. In 2016, the combined income from bank card business amounted to RMB244.43 billion, accounting for 22.65% of total net fee and commission income. In contrast, fee income from guarantee and commitment business, advisory and investment banking business as well as settlement and clearing business decreased by 7.27%, 6.46% and 2.02%, respectively, y-o-y.

In 2016, the net fee and commission income of the listed banks grew by 9.52% y-o-y, slowing down by 6.41 percentage points from that of 2015. Given below is the growth trend of the net fee and commission income of specific groups of the listed banks:

• Large commercial banks: Grew by 2.78% y-o-y, decelerating by 2.86 percentage points from that of 2015;

• National joint-stock banks: Grew by 16.50% y-o-y, slowing down by 18.05 percentage points from that of 2015;

• City and rural commercial banks: Grew by 38.70% y-o-y, slowing down by 6.09 percentage points from that of 2015;

• PSCB: Grew by 32.59% y-o-y, slowing down by 1.26 percentage points from that of 2015.

The national joint-stock banks exhibited the largest fall in net fee and commission income among the listed banks. Particularly, the net fee and commission income of HX grew by 18.46% y-o-y, slowing down by 43.22 percentage points from that of 2015, mainly due to a fall of 128.70% in wealth management fee growth and a surge of 34.80% in fee and commission expense growth from that of 2015. Moreover, the fee and commission income of CMBC and CEB grew by 2.06% and 6.89%, respectively, y-o-y, slowing down by 31.85 percentage points and 30.40 percentage points, respectively, from that of 2015.

Growth trend of net fee and commission income of the listed banks

2014 2015 2016

50%

40%

30%

20%

10%

0%x

xx

41.93%

44.79%

38.70%

32.59%

16.50%

9.52%

2.78%

15.93%

5.64%

34.26%

14.05%

8.62%5.78%

34.55%

33.85%

6.41%



PSBC


All listed banks




Net fee and commission income amount and growth rate of listed banks* (in RMB million)

2014 2015 2016


ICBC 132,497 8.31% 143,391 8.22% 144,973 1.10%CCB 108,517 4.06% 113,530 4.62% 118,509 4.39%ABC 80,123 -3.66% 82,549 3.03% 90,935 10.16%BOC 91,240 11.14% 92,410 1.28% 88,664 -4.05%BOCOM 29,604 14.00% 35,027 18.32% 36,795 5.05%Large commercial banks

441,981 5.78% 466,907 5.64% 479,876 2.78%


198,241 34.26% 266,733 34.55% 310,752 16.50%

BOB 4,780 20.98% 7,120 48.95% 9,599 34.82%BSH 3,947 70.28% 5,508 39.55% 6,157 11.78%BJS 2,802 17.58% 3,899 39.15% 5,822 49.32%BONJ 1,954 65.59% 3,253 66.48% 3,823 17.52%BJZ 116 54.67% 501 331.90% 809 61.48%CQRCB 1,070 57.35% 1,495 39.72% 2,118 41.67%BONB 2,485 53.49% 3,990 60.56% 6,047 51.55%HSB 856 58.52% 1,771 106.89% 2,491 40.65%SJB 1,368 77.66% 1,204 -11.99% 1,914 58.97%HRB 1,600 28.31% 1,959 22.44% 2,393 22.15%BTJ 524 25.66% 996 90.08% 1,402 40.76%BZZ 348 114.81% 713 104.89% 1,215 70.41%BHZ 1,328 22.96% 1,189 -10.47% 2,063 73.51%BGY 293 173.83% 674 130.03% 1,420 110.68%BCQ 909 40.93% 1,512 66.34% 1,926 27.38%JTRCB 301 77.06% 223 -25.91% 748 235.43%BQD 689 62.12% 750 8.85% 888 18.40%CSRCB 38 -22.45% 51 34.21% 298 484.31%WXRCB 108 14.89% 160 48.15% 180 12.50%JYRCB 56 -12.50% 54 -3.57% 50 -7.41%

ZJGRCB 49 8.89% 92 87.76% 125 35.87%WJRCB 49 -25.76% 53 8.16% 63 18.87%City and rural commercial banks

25,670 41.93% 37,167 44.79% 51,551 38.70%

PSBC 6,479 8.62% 8,672 33.85% 11,498 32.59%All listed banks 672,371 14.05% 779,479 15.93% 853,677 9.52%

Source: EY (calculated based on the data published in the annual reports and prospectuses of the listed banks)*Net fee and commission incomes of the listed banks are shown in million, on which the calculation of growth rates is based



Stabilized cost-to-income ratio

In 2016, the listed banks tightened control over costs as their operating performance came under increased pressure amid slower economic growth. The average cost-to-income ratio of the listed banks stood at 30%, up by 0.08 percentage points from 29.92% in 2015, remaining largely stable.

Twenty-one listed banks’ cost-to-income ratio increased from that of 2015. PSBC saw the sharpest rise of 5.73 percentage points as its operating expenses increased by 4.99% mainly due to the surge in savings agency fees. Apart from PSBC’s self-run deposit-taking business, other entities under the China Post Group act as agencies to provide deposit services on behalf of PSBC, and PSBC in turn pays fees to China Post. Such agency fees, as the most significant expense item, represented 47.35% of PSBC’s operating expenses in 2016, thus pushing up its cost-to-income ratio to a level considerably higher than that of peers.

Sixteen listed banks reported a decline in cost-to-income ratio in 2016. Particularly, BCQ saw the largest fall y-o-y by 6.97 percentage points in cost-to-income ratio, benefiting primarily from its effort to rein in costs and improve income from the main businesses that increased operating income by 11.8% and decreased expenses by 20.5%. The cost-to-income ratio of PAB, HSB, BJZ and HRB dropped by 5.34 percentage points, 4.47 percentage points, 3.97 percentage points and 3.15 percentage points, respectively.

8 basis points

Changes in cost-to-income ratio of the listed banks

65%

55%

45%

35%

25%2014 2015 2016

xxx

60.95%

31.38%

30.82%30.34%

29.80%

60.71%

29.92%

27.87%

29.60%28.88%

66.44%

30.00%

27.78%

29.53%29.36%



PSBC


All listed banks

*Simple arithmetic average Source: EY (calculated based on the data published in the annual reports and prospectuses of the listed banks)



Cost-to-income ratios of the listed banks

2014 2015 2016

ICBC 26.75% 25.49% 25.91%CCB 28.85% 26.98% 27.49%ABC 34.56% 33.28% 34.59%BOC 28.57% 28.30% 28.08%BOCOM 30.29% 30.36% 31.60%Large commercial banks

29.80% 28.88% 29.53%

CMB 30.54% 27.67% 28.01%IB 23.78% 21.59% 23.39%SPDB 23.12% 21.86% 23.16%CMBC 33.27% 31.22% 30.98%CITIC 30.32% 27.85% 27.56%CEB 29.82% 26.91% 28.77%PAB 36.33% 31.31% 25.97%HX 37.57% 34.78% 34.50%CZB 28.32% 27.66% 27.71%National joint-stock commercial banks

30.34% 27.87% 27.78%

BOB 24.65% 24.99% 25.81%BSH 25.06% 22.99% 22.89%BJS 29.57% 29.37% 29.21%BONJ 27.91% 24.10% 24.80%BJZ 31.26% 18.80% 14.83%CQRCB 35.74% 34.69% 35.95%BONB 32.07% 34.03% 34.26%HSB 33.08% 32.02% 27.55%SJB 19.06% 19.04% 19.31%HRB 35.04% 31.75% 28.60%BTJ 23.63% 22.49% 27.52%BZZ 27.72% 23.27% 22.26%BHZ 30.90% 31.53% 30.23%BGY 27.19% 26.43% 25.60%BCQ 31.02% 30.69% 23.72%JTRCB 41.11% 43.54% 41.61%BQD 39.61% 35.80% 34.71%CSRCB 33.83% 34.97% 37.40%WXRCB 30.93% 32.30% 32.45%JYRCB 35.96% 31.59% 35.96%ZJGRCB 32.69% 35.20% 37.25%WJRCB 29.96% 31.62% 34.03%City and rural commercial banks

30.82% 29.60% 29.36%

PSBC 60.95% 60.71% 66.44%All listed banks 31.38% 29.92% 30.00%

Source: Annual reports and prospectuses published by the listed banks*Simple arithmetic average



Cost of credit of the listed banks (%)

2014 2015 2016

ICBC 0.54% 0.75% 0.69%CCB 0.66% 0.93% 0.81%ABC 0.85% 0.96% 0.85%BOC* 0.58% 0.63% 0.91%BOCOM* 0.60% 0.73% 0.69%Large commercial banks**

0.65% 0.80% 0.79%

CMB 1.33% 2.15% 2.12%IB 1.33% 2.20% 2.40%SPDB 1.15% 1.73% 1.87%CMBC 1.18% 1.71% 1.83%CITIC* 1.06% 1.51% 1.67%CEB 0.81% 1.40% 1.34%PAB* 1.55% 2.56% 3.37%HX 0.59% 0.88% 1.17%CZB 1.80% 2.04% 2.09%National joint-stock commercial banks**

1.20% 1.80% 1.98%

BOB 0.75% 1.05% 0.93%BSH 1.04% 1.41% 0.87%BJS 1.01% 1.01% 1.07%BONJ 1.59% 2.95% 2.44%BJZ 0.85% 1.97% 1.01%CQRCB 0.82% 1.17% 0.83%BONB 1.27% 1.65% 1.81%HSB 0.47% 1.16% 1.83%SJB 0.59% 0.80% 1.27%HRB 0.49% 0.66% 1.06%BTJ 0.48% 0.74% 0.94%BZZ 0.58% 1.31% 1.92%BHZ 1.31% 1.46% 1.89%BGY 0.76% 1.42% 2.87%BCQ 0.74% 0.88% 1.36%JTRCB 0.66% 0.80% 0.69%BQD 0.61% 0.79% 1.25%CSRCB 1.32% 1.67% 2.01%WXRCB 0.71% 0.68% 0.87%JYRCB 1.12% 1.37% 1.40%ZJGRCB 1.81% 1.91% 1.53%WJRCB 1.76% 1.93% 1.50%City and rural commercial banks**

0.94% 1.31% 1.43%

BC 1.06% 1.07% 0.74%All listed banks** 0.97% 1.35% 1.46%

Slower growth in loan provisions

In 2016, the provisions for loan impairment losses of the listed banks increased by RMB103.195 billion or 15.11% y-o-y, slowing down by 37.83 percentage points from 52.94% in 2015.

Changes in loan impairment losses of the listed banks

In 2016, the cost of credit of the listed banks rose by 11 basis points y-o-y, representing a decrease of 27 basis points from the rise of 38 basis points in 2015. In particular, the cost of credit of large commercial banks dropped by 1 basis point. BOC was the only one among the large commercial banks that reported a rising cost of credit, even at a faster growth; whereas all other large commercial banks saw a decrease in cost of credit in 2016.

The cost of credit of national joint-stock commercial banks rose by 18 basis points in 2016, a decrease of 42 basis points from 60 basis points in 2015. HX’s cost of credit remained unchanged, while each of the other eight national joint-stock commercial banks reported a decline in this ratio. Particularly, CMB, IB and CEB saw a sharper decline, by 85 basis points, 67 basis points and 65 basis points, respectively. The cost of credit for city and rural commercial banks rose by 12 basis points, with 14 banks reporting an increased cost of credit and eight banks facing a decrease. PSBC’s cost of credit fell by 33 basis points y-o-y.

122%

107%

92%

77%

62%

47%

32%

17%

2%

-13%2014 2015 2016

x

xx

122.18%

77.53%

26.36%19.27%15.11%7.67%

-12.40%

52.94%61.54%

38.73%

29.38%

91.79%86.10%

61.11%

42.13%

Source: Calculated based on the data published in the annual reports of the listed banks *Data for BOC, BOCOM, CITIC, PAB were disclosed in the banks’ annual reports**Simple arithmetic average

37.83%



PSBC


All listed banks



2



Over the past two years, the economic slowdown and lower return on investment in the real economy have resulted in a decreased supply of high-quality assets under the economic “new normal.” In 2016, the listed banks increased efforts in adjusting the asset structure, seeing their total assets reach RMB154,335.007 billion, up by 13.90% from that of the prior year-end.

Changes in asset size showed divergence by asset class. Specifically, the growth of loan assets, investment assets and interbank assets stood at 12.78%, 24.24% and -8.87%, respectively. The investment assets grew much more rapidly than loan assets, while the interbank assets exhibited negative growth.

By asset structure, investment assets (including financial assets measured at fair value through profit or loss, held-to-maturity investment, available-for-sale financial assets, financial investments classified as receivables) accounted for 30.01% of the total assets, up by 2.50 percentage points from the prior year-end. Interbank assets represented 7.00%, down by 1.75 percentage points. Loan assets accounted for 47.34%, down by 0.47 percentage points.

The total assets of the large commercial banks, national joint-stock commercial banks, city and rural commercial banks and PSBC grew by 10.81%, 18.16%, 23.51% and 13.28%, respectively.

Growth of total assets of the listed banks

31 Dec 2014 31 Dec 2015 31 Dec 2016

30%

25%

20%

15%

10%

5%

xxx

23.50%

18.29%17.09%

12.99%

8.98%

26.19%

18.16%15.85%13.54%

9.99%

23.51%

18.16%

13.90%13.28%10.81%


Growth of assets of the listed banks by asset class

Loan assets Investment assets Intebank assets

50%

40%

30%

20%

10%

0%

-10%

-20%

-30%

-40%

Large commercial

banks

National joint-stock

commercial banks

City and rural commercial

banks

PSBC All listed banks

16.38%

-1.97% -13.27% -13.76% -34.34% -8.87%

17.88%

31.48%

46.16%

15.98%24.24%

16.12%21.83%

12.78%10.14%

Total assets

13.9%



PSBC


All listed banks





Housing loans as a larger part of new lending

Changes in asset structure of the listed banks

$

$

$

Investment assets

Interbank assets

Others

Loan assets

27.51%

8.75%

15.93%

31 DEC 2015

47.81% 47.34%

30.01%

7.00%

15.65%

31 DEC 2016

In 2016, the listed banks increased the proportion of personal housing loans in new lending with consideration of the balance between market demands and risk control. As at 31 December 2016, the loan assets increased by RMB8,278.724 billion, including RMB4,572.006 billion of personal housing loans, accounting for 55.23% of total new loans. In 2016, the personal housing loans of the listed banks reached RMB17,255.392 billion, growing by 36.05% from the prior year-end. The national joint-stock commercial banks led the growth in personal housing loans at 65.13%, followed by PSBC, the city and rural commercial banks and the large commercial banks, at 56.60%, 32.96% and 29.75%, respectively. Particularly, WRCB and CZB reported a growth of 352.35% and 299.82%, respectively.

Changes in personal housing loans of the listed banks

31 Dec 2014 31 Dec 2015 31 Dec 2016

65%

55%

45%

35%

25%

15%

5%

x xx

43.36%

26.88%

16.00%

21.09%22.56%

65.13%

56.60%

36.05%32.96%29.75%

35.19%

18.05%17.34%11.18%

10.01%

36.05%Personal housing loans



PSBC


All listed banks




Listed banks personal housing loans amount and growth rate* (in RMB million)

2014 2015 2016


ICBC 2,070,366 20.33% 2,516,197 21.53% 3,240,838 28.80%CCB 2,273,093 19.88% 2,797,226 23.06% 3,625,574 29.61%ABC 1,550,701 20.02% 1,927,049 24.27% 2,560,002 32.85%BOC 1,694,275 12.48% 2,045,787 20.75% 2,635,960 28.85%BOCOM 579,402 15.03% 604,357 4.31% 770,280 27.45%Large commercial banks

8,167,837 18.05% 9,890,616 21.09% 12,832,654 29.75%

CMB 329,178 22.55% 499,455 51.73% 728,328 45.82%SPDB 198,769 7.41% 298,309 50.08% 517,597 73.51%IB 210,011 12.56% 260,568 24.07% 458,215 75.85%CMBC 69,606 12.09% 114,328 64.25% 295,875 158.79%CITIC 232,117 5.33% 268,926 15.86% 433,210 61.09%CEB 199,167 12.54% 180,127 -9.56% 290,114 61.06%PAB 55,365 -14.77% 45,967 -16.97% 85,229 85.41%HX 108,953 11.86% 111,248 2.11% 123,841 11.32%CZB 660 10.92% 2,204 233.94% 8,812 299.82%National joint-stock commercial banks

1,403,826 11.18% 1,781,132 26.88% 2,941,221 65.13%

BOB 95,958 15.26% 123,150 28.34% 176,147 43.03%BSH 45,011 7.42% 47,382 5.27% 54,733 15.49%BJS 47,248 3.89% 51,932 9.91% 69,573 33.97%BONJ 19,493 19.45% 22,082 13.28% 36,148 63.70%BJZ 231 52.98% 390 68.83% 723 85.38%CQRCB 45,899 -0.82% 44,100 -3.92% 43,615 -1.10%BONB 1,591 -7.66% 1,502 -5.59% 1,295 -13.78%HSB 40,070 15.18% 44,627 11.37% 60,672 35.95%SJB 3,478 19.07% 4,025 15.73% 4,519 12.27%HRB 5,575 -6.08% 7,043 26.33% 14,039 99.33%BTJ 9,812 -4.61% 10,028 2.20% 14,520 44.79%BZZ 6,047 68.77% 5,828 -3.62% 6,862 17.74%BHZ 18,444 12.95% 24,612 33.44% 33,015 34.14%BGY 4,722 -3.73% 5,577 18.11% 7,051 26.43%BCQ 17,340 9.82% 17,880 3.11% 18,296 2.33%JTRCB 455 222.70% 1,376 202.42% 2,153 56.47%BQD 6,351 60.74% 11,139 75.39% 18,265 63.97%CSRCB 4,166 -9.10% 4,631 11.16% 4,639 0.17%WXRCB** Not disclosed Not disclosed 3,788 Not disclosed 6,110 61.30%JYRCB 507 24.88% 569 12.23% 390 -31.46%ZJGRCB 1,962 23.71% 2,211 12.69% 2,478 12.08%WJRCB 109 53.52% 510 367.89% 2,307 352.35%City and rural commercial banks

374,469 10.01% 434,382 16.00% 577,550 32.96%

PSBC 402,668 35.19% 577,256 43.36% 903,967 56.60%All listed banks 10,348,800 17.34% 12,683,386 22.56% 17,255,392 36.05%

Source: Annual reports and prospectuses of the listed banks*Personal housing loans amounts of the listed banks are shown in RMB million, on which the calculation of growth rates is based**Wuxi Rural Commercial Bank did not disclose the personal loan amounts as at 31 December 2013 and 31 December 2014, so the figures were not used for the calculation of annual growth rates of city and rural commercial banks and all the listed banks for the two years



As at 31 December 2016, the investment assets of the listed banks totaled RMB 46,314.292 billion, rising by 24.24% from a year earlier, with bonds and investment assets such as structured entities sponsored by third parties as key components.

Rapid growth in government bond investment

48.03%Government bond

In 2016, the listed banks continued to ramp up investment in China Government Bonds and local government bonds as the local governments increased bond issuance. As at 31 December 2016, the listed banks’ government bond investment amounted to RMB 15,113.584 billion, growing by 48.03% y-o-y, overwhelmingly higher than the 24.24% growth in investment assets in 2015. In 2016, bond investment of the large commercial banks, national joint-stock commercial banks, city and rural commercial banks and PSBC grew by 43.43%, 65.25%, 55.35% and 39.31%, respectively. Particularly, SJB and CMBC exhibited a dramatic growth of 418.53% and 163.78%, respectively.

Growth of government bond investment of the listed banks

2014 2015 2016

70%

60%

50%

40%

30%

20%

10%

0%

-10%

xx

x

25.50%

12.26%7.72%

-4.35%

65.25%

55.35%48.03%43.43%39.31%

59.19%

52.72%

51.05%

43.08%

14.42%

36.60%



PSBC


All listed banks




The amount and growth rate of the listed banks’ government bonds* (in RMB billion)

2014 2015 2016


ICBC 1,455,653 0.84% 1,910,099 31.22% 2,542,487 33.11%CCB 1,234,212 14.76% 1,900,877 54.02% 2,669,804 40.45%ABC 807,513 3.25% 1,347,171 66.83% 2,023,059 50.17%BOC 892,754 15.14% 1,411,475 58.10% 2,004,727 42.03%BOCOM 345,199 8.06% 662,337 91.87% 1,132,581 71.00%Large commercial banks

4,735,331 7.72% 7,231,959 52.72% 10,372,658 43.43%

CMB 202,941 28.12% 284,051 39.97% 428,932 51.01%IB 268,683 93.34% 421,475 56.87% 620,964 47.33%SPDB 152,219 16.93% 179,390 17.85% 241,696 34.73%CMBC 127,996 48.20% 275,795 115.47% 727,484 163.78%CITIC 78,829 -1.74% 148,405 88.26% 215,488 45.20%CEB 109,598 20.59% 160,191 46.16% 264,016 64.81%PAB 76,840 49.86% 159,374 107.41% 215,646 35.31%HX 104,825 19.24% 148,445 41.61% 216,744 46.01%CZB 6,945 211.99% 19,914 186.74% 38,584 93.75%National joint-stock commercial banks

1,128,876 36.60% 1,797,040 59.19% 2,969,554 65.25%

BOB 114,957 25.21% 143,190 24.56% 184,102 28.57%BSH 93,670 5.49% 139,225 48.63% 233,974 68.05%BJS 32,667 264.02% 77,188 136.29% 123,618 60.15%BONJ 65,365 69.83% 106,388 62.76% 156,558 47.16%BJZ 4,771 0.04% 6,764 41.77% 5,329 -21.22%CQRCB 7,539 -7.14% 13,387 77.57% 19,870 48.43%BONB 55,865 29.37% 88,984 59.28% 132,872 49.32%HSB 23,591 21.70% 37,455 58.77% 56,352 50.45%SJB 18,103 3.65% 19,333 6.79% 100,247 418.53%HRB 3,356 9.35% 7,012 108.94% 8,075 15.16%BTJ 20,544 13.00% 23,647 15.10% 40,888 72.91%BZZ 7,159 40.62% 11,982 67.37% 14,784 23.39%BHZ 31,221 21.73% 35,145 12.57% 60,600 72.43%BGY 25,765 29.67% 24,553 -4.70% 22,757 -7.31%BCQ 5,052 2.47% 11,474 127.12% 20,460 78.32%JTRCB 679 -16.17% 3,092 355.38% 3,862 24.90%BQD 3,085 31.61% 7,530 144.08% 11,490 52.59%CSRCB 11,165 -17.78% 11,467 2.70% 9,984 -12.93%WXRCB 4,869 9.71% 6,273 28.84% 7,170 14.30%JYRCB 16,626 17.98% 14,105 -15.16% 17,688 25.40%ZJGRCB 7,057 3.11% 4,079 -42.20% 3,070 -24.74%WJRCB 4,426 1.58% 5,447 23.07% 5,500 0.97%City and rural commercial banks

557,532 25.50% 797,720 43.08% 1,239,250 55.35%

PSBC 346,391 -4.35% 396,339 14.42% 552,122 39.31%All listed banks 6,768,130 12.26% 10,223,058 51.05% 15,133,584 48.03%

Source: Annual reports and prospectuses of published by the listed banks*The amounts of government bond investment of the listed banks are shown in RMB million, on which the calculation of growth rates is based



Slower growth in investment in the structured entities sponsored by third parties

Structured entities include, but are not limited to, commercial banks’ wealth management products (WMPs), trust investment plans, securities investment funds, asset management plans sponsored by securities companies, fund managers and their subsidiaries’ asset management plans, and insurance asset managers’ asset management products. In 2015, the growth rate of investment in the structured entities sponsored by third parties was as high as 65%, with PSBC, the city and rural commercial banks and the national joint-stock banks reporting growth of 125%, 85% and 64%, respectively. In contrast, the year 2016 witnessed the listed banks experiencing a dramatic growth deceleration in such assets by 26%, with PSBC, city and rural commercial banks, and national joint-stock banks reporting growth of 20%, 51% and 18%, respectively.

The investment of the large commercial banks in the structured entities sponsored by third parties as a percentage of total assets was significantly lower than that of other groups of the listed banks. As at 31 December 2016, the proportion was as low as 1.25% for large commercial banks — much lower than the 20.84% level of national joint-stock banks, 26.02% of city and rural commercial banks, and 15.82% of PSBC.

Investment of large commercial banks in the structured entities sponsored by third parties as a percentage of total assets


As the relatively complex structure of structured entities and nested financial instruments potentially involving different markets might result in cross-market risk contagion, regulators are expected to continuously increase the supervision over such businesses.

Large commercial

banks

National joint-stock

commercial banks

City and rural

commercial banks

PSBC All listed banks

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%1.25%

20.84%

26.02%

15.82%

9.37%

39%Investment in structured entities



The amount of listed banks’ investment in the structured entities sponsored by third parties (in RMB million)

2014 2015 2016

Balance Balance Growth rate Balance Growth rate

ICBC 160,750 259,815 62% 282,255 9%CCB 32,018 50,078 56% 409,760 718%ABC 327,783 30,537 -91% 34,463 13%BOC 154,706 325,220 110% 106,206 -67%BOCOM 183,178 266,866 46% 303,951 14%Large commercial banks

858,435 932,516 9% 1,136,635 22%

CMB 478,457 718,068 50% 558,728 -22%IB 1,154,217 2,053,055 78% 2,294,475 12%SPDB 806,588 1,302,941 62% 1,313,603 1%CMBC 282,623 423,796 50% 1,084,547 156%CITIC 646,959 1,123,482 74% 1,069,517 -5%CEB 299,701 564,012 88% 816,160 45%PAB 248,077 295,746 19% 373,266 26%HX 201,383 80,814 -60% 206,097 155%CZB 156,849 428,718 173% 540,104 26%National joint-stock commercial banks

4,274,854 6,990,632 64% 8,256,497 18%

BOB 83,728 122,866 47% 285,575 132%BSH 233,170 332,128 42% 556,660 68%BJS 170,597 318,561 87% 504,152 58%BONJ 120,647 173,666 44% 276,927 59%BJZ 79,256 166,482 110% 283,482 70%CQRCB 43,713 114,530 162% 157,224 37%BONB 141,976 231,748 63% 224,162 -3%HSB 49,221 161,128 227% 232,787 44%SJB 85,612 235,141 175% 246,811 5%HRB 49,696 99,550 100% 142,658 43%BTJ 72,918 144,554 98% 199,114 38%BZZ 47,388 67,588 43% 111,073 64%BHZ 49,839 125,715 152% 228,473 82%BGY 10,620 30,759 190% 64,344 109%BCQ 53,841 69,557 29% 71,654 3%JTRCB 6,661 15,037 126% 16,840 12%BQD 28,060 41,548 48% 91,403 120%CSRCB Not disclosed 12,069 Not applicable 18,077 50%WXRCB Not disclosed 6,097 Not applicable 19,246 216%JYRCB 670 5,468 716% 11,801 116%ZJGRCB Not disclosed Not disclosed Not applicable 6,256 Not applicableWJRCB 30 1,786 5853% 5,156 189%City and rural commercial banks

1,327,643 2,475,978 85% 3,753,875 51%

PSBC 484,485 1,089,150 125% 1,307,706 20%All listed banks 6,945,417 11,488,276 65% 14,454,713 26%

Source: Annual reports and prospectuses published the listed banks*For the growth rate of 2015 and 2016, banks that did not disclose the data within the comparable period are excluded


3



Both the NPL balances and NPL ratios of the listed banks continued to rise due to a combination of slower economic growth, increased risk exposure to industries burdened with excess capacity, and adjustments to commodity prices. At the end of 2016, the listed banks’ NPL balance posted slower growth, and the Special Mention loan ratios and overdue loan ratios fell. Nonetheless, the overall asset quality of the listed banks still faced significant pressure due to slower economic growth and the ongoing supply-side structural reform.

As at 31 December 2016, the NPL balance of the 37 listed banks totaled RMB1,240.296 billion, increasing by RMB184.088 billion from the prior year-end, while the weighted average NPL ratio rose to 1.65% from 1.59% at the end of 2015, up by 0.06 percentage points, but demonstrated a y-o-y deceleration of 0.34 percentage points. Specifically, the NPL ratio of large commercial banks increased slightly by 0.02 percentage points from the prior year-end, albeit with CCB and ABC reporting a slight decline. The NPL ratio of national joint-stock banks, city and rural commercial banks, and PSBC continued to rise, but at a slower pace.

Since the beginning of 2012, the NPL ratio of the listed banks has been on the rise for four consecutive years. However, the upward trend of the ratio was accompanied by a deceleration seen at 2016 year-end.

Changes in the NPL ratios of the listed banks

NPL

6 basis points

2014 2015 2016

1.90%

1.70%

1.50%

1.30%

1.10%

0.90%

0.70%

0.50%

xx

x1.25%

1.69% 1.73%1.71%1.65%

1.28%

0.87%

1.16%

0.80%

1.54%

1.59%

1.19%1.14%0.98%

0.64%



PSBC


All listed banks

Source: EY (calculated based on the data published in the annual reports of the listed banks)



NPL balances and NPL ratios of the listed banks (in RMB million)

31 Dec 2014 31 Dec 2015 31 Dec 2016

NPL Balance NPL ratio NPL Balance NPL ratio NPL Balance NPL ratio

ICBC 124,497 1.13% 179,518 1.50% 211,801 1.62%CCB 113,171 1.19% 165,980 1.58% 178,690 1.52%ABC 124,970 1.54% 212,867 2.39% 230,834 2.37%BOC 100,494 1.18% 130,897 1.43% 146,003 1.46%BOCOM 43,017 1.25% 56,206 1.51% 62,400 1.52%Large commercial banks

506,149 1.25% 745,468 1.69% 829,728 1.71%


155,195 1.14% 239,868 1.54% 318,584 1.73%

BOB* 5,784 0.86% 8,655 1.12% 11,426 1.27%BSH 4,713 0.97% 6,370 1.19% 6,498 1.17%BJS 6,352 1.30% 8,015 1.43% 9,318 1.43%BONJ 1,639 0.94% 2,082 0.83% 2,896 0.87%BJZ 879 0.99% 1,046 1.03% 1,448 1.14%CQRCB 1,887 0.78% 2,630 0.98% 2,873 0.96%BONB 1,863 0.89% 2,362 0.92% 2,765 0.91%HSB 1,826 0.83% 2,398 0.99% 2,967 1.07%SJB 696 0.44% 814 0.42% 4,106 1.74%HRB 1,400 1.13% 2,079 1.40% 3,082 1.53%BTJ 1,871 1.09% 2,481 1.34% 3,175 1.48%BZZ 583 0.75% 1,040 1.10% 1,457 1.31%BHZ 2,350 1.20% 2,937 1.36% 4,004 1.62%BGY 571 0.81% 1,234 1.48% 1,452 1.42%BCQ 732 0.69% 1,210 0.97% 1,442 0.95%JTRCB 409 1.19% 679 1.42% 878 1.41%BQD 718 1.14% 864 1.19% 1,187 1.36%CSRCB 436 0.95% 824 1.43% 933 1.40%WXRCB 581 1.15% 649 1.17% 840 1.39%JYRCB 925 1.91% 1,082 2.17% 1,265 2.41%ZJGRCB 577 1.51% 782 1.96% 871 1.96%WJRCB 643 1.69% 764 1.86% 810 1.78%City and rural commercial banks

37,435 0.98% 50,997 1.16% 65,693 1.28%

PSBC 11,997 0.64% 19,875 0.80% 26,291 0.87%All listed banks 710,776 1.19% 1,056,208 1.59% 1,240,296 1.65%

Source: Annual reports published by the listed banks*Data available in BOB’s 2014 annual report were disclosed at the bank level instead of the group level



Special Mention loan ratio and overdue loan ratio showed an upward trend for three consecutive years from 2013 to 2015, yet both declined at the 2016 year-end. As of December 2016, the proportion of Special Mention loans of the listed banks fell to 3.30%, down by 0.02 percentage points from the prior year-end. For national joint-stock banks and PSBC, the proportion dropped by 0.13 percentage points and 0.69 percentage points, respectively. For the large commercial banks and city and rural commercial banks, the proportion increased by 0.06 percentage points and 0.03 percentage points, respectively.

Changes in the proportion of Special Mention loans of the listed banks

As at 31 December 2016, the ratio of over 90-day overdue loans to total NPLs dropped to 96.03% from 97.65% as at 31 December 2015. For the national joint-stock banks and city and rural commercial banks, however, the ratio stood at 120.77% and 113.46% respectively, exceeding 100% for three consecutive years, and evidencing that the two groups remained under higher pressure in terms of asset quality.

Changes in the proportion of Special Mention loans of the listed banks

As at 31 December 2016, the overdue loan ratio of the listed banks dropped to 2.43% from 2.57% from 2015 year end. The ratio fell from 2.44% to 2.31% for large commercial banks, from 3.29% to 3.00% for national joint-stock banks, and from 0.99% to 0.96% for PSBC. In contrast, city and rural commercial banks were the only group that saw an increase in the overdue loan ratio, from 2.22% to 2.34%.

Changes in the proportion of overdue loans of the listed banks

2014 2015 2016

4.00%

3.50%

3.00%

2.50%

2.00%

1.50%

1.00%

0.50%

xx

x2.97%

3.50%3.56%3.30%3.18%

2.69%

0.81%

3.31%

2.66%

1.50%

3.32%

2.78%2.41%2.25%2.25%

As at 31 December 2016, the average ratio of allowance to NPLs of the listed banks lowered by 11.75 percentage points to 216.87% from the prior year-end, and exhibited a narrower contraction due to slower NPL growth. Specifically, the average ratio of allowance to NPLs of the large commercial banks, the national joint-stock banks, the city and rural commercial banks, and PSCB dropped by 6.38 percentage points, 6.22 percentage points, 14.57 percentage points, and 26.46 percentage points, respectively, from that of the prior year-end.

Changes in the ratio of allowance to NPLs of the listed banks

2014 2015 2016

3.50%

3.00%

2.50%

2.00%

1.50%

1.00%

0.50%

xx

x

2.72%

1.96%

1.77%

0.82%

1.81%

3.29%

2.57%

2.22%

0.99%

2.44%

3.00%

2.43%2.34%2.31%

0.96%

2014 2015 2016

140.00%

130.00%

120.00%

110.00%

100.00%

90.00%

80.00%

70.00%

60.00%

xxx

86.46%85.71%

78.95%

128.98%

120.77%122.69% 119.05%

113.46%103.22%

97.65%96.03%

89.79%

84.45% 78.54%79.82%

2014 2015 2016

400.00%

350.00%

300.00%

250.00%

200.00%

150.00%

100.00%

x

x x

216.45%

161.13% 154.75%

222.63%183.56%

177.34%

274.67% 259.23%244.66%

256.56%228.62%

216.87%

364.10%

298.15%

271.69%



PSBC


All listed banks




PSBC


All listed banks




PSBC


All listed banks




PSBC


All listed banks




For most listed banks, the ratio of allowance to NPLs declined from the prior year-end. Nevertheless, 14 listed banks reversed the overall trend to see this ratio rise, which were BOC, CMB, IB, CMBC, CZB, CQRCB, BONJ, BONB, HSB, BCQ, ZRCB, JYRCB, BSH and CSRCB.

Ratio of allowance to NPLs of the listed banks (%)31 Dec

201431 Dec

201531 Dec

2016ICBC 206.90% 156.34% 136.69%CCB 222.33% 150.99% 150.36%ABC 286.53% 189.43% 173.40%BOC 187.60% 153.30% 162.82%BOCOM 178.88% 155.57% 150.50%Large commercial banks

216.45% 161.13% 154.75%

CMB 233.42% 178.95% 180.02%IB 250.21% 210.08% 210.51%SPDB 249.09% 211.40% 169.13%CMBC 182.20% 153.63% 155.41%CITIC 181.26% 167.81% 155.50%CEB 180.52% 156.39% 152.02%PAB 200.90% 165.86% 155.37%HX 233.13% 167.12% 158.73%CZB 292.96% 240.83% 259.33%National joint-stock commercial banks

222.63% 183.56% 177.34%

BOB 324.22% 278.39% 256.06%BSH 260.55% 237.70% 255.50%BJS 207.00% 192.06% 180.56%BONJ 325.72% 430.95% 457.32%BJZ 256.15% 369.13% 336.30%CQRCB 459.79% 420.03% 428.37%BONB 285.17% 308.67% 351.42%HSB 255.27% 250.49% 270.77%SJB 387.42% 482.38% 159.17%HRB 208.33% 173.83% 166.77%BTJ 238.15% 202.84% 193.56%BZZ 301.66% 258.55% 237.38%BHZ 196.75% 193.43% 186.76%BGY 400.43% 239.98% 235.19%BCQ 318.87% 243.98% 293.35%JTRCB 233.40% 206.86% 206.57%BQD 242.32% 236.13% 194.01%CSRCB 317.50% 219.18% 234.83%WXRCB 229.41% 227.92% 200.77%JYRCB 171.97% 169.72% 170.14%ZJGRCB 211.03% 172.02% 180.36%WJRCB 211.63% 188.83% 187.46%City and rural commercial banks

274.67% 259.23% 244.66%

PSBC 364.10% 298.15% 271.69%All listed banks 256.56% 228.62% 216.87%

Source: Annual reports published by the listed banks

Market-based disposal of non-performing assetsGiven the challenge of growing NPLs but disposal in undiversified ways, the listed banks have stepped up efforts in exploring and implementing new disposal models. Most notably, the market-based securitization of nonperforming assets and debt-for-equity swaps have been adopted gradually by the listed banks.

In 2016, the securitization of non-performing assets was resumed. ICBC, CCB, BOC, ABC, BOCOM and CMB were first approved to take part in the pilot program, with an aggregate limit of RMB50 billion. In 2016, the six participating banks issued 14 non-performing asset securitization products amounting to RMB15.6 billion, which was related to RMB46.1 billion of NPL principal. The underlying assets included corporate NPLs, credit card NPLs, SME NPLs, non-performing personal consumption loans, non-performing personal business loans and non-performing personal housing loans. In 2017, the pilot program on securitization of non-performing assets is expected to extend to joint-stock commercial banks and city commercial banks.

Securitization of non-performing assets of the listed banks in 2016

Since the 2016 year-end, the five state-owned banks have established specialized asset management platforms to embark on market-based debt-for-equity swaps. Going forward, these platforms are expected to focus on businesses approved by the regulators, such as debt-for-equity swaps and related debt acquisition as well as holding, management and disposal of equity of swap principals. In 2017, following the efforts of the five state-owned banks, the joint-stock commercial banks and four major asset corporations also moved to prepare for the establishment of debt-for-equity swap business. In April 2017, IB and AnSteel entered into a cooperation framework agreement on establishing a debt-for-equity swap fund, known as the first debt-for-equity swap project for joint-stock banks. Following suit, CMB, SPDB and other joint-stock banks have been preparing for the implementation of debt-for-equity swap projects.

Credit card NPLs

SME NPLs

Personal NPLs

Corporate NPLs

16%

4%

21%

Proportion of underlying assets

59% 51%

7%

6%

36%

Proportion of issuing scale

Source: EY (calculated based on the data published about asset securitization product)


4



Integrated and internationalized operations have exposed the Chinese banks to complex risk management challenges arising from common cross-border credit risk, compliance risk and country risk, but increasingly from other factors as listed below:

• Integrated risk management: The risk management philosophy and risk appetite of branches and subsidiaries in different jurisdictions might vary from what their parent banks or head offices have identified. Therefore, banks need to integrate the risk management systems across markets and business areas to avoid greater risks.

• Firewall mechanism of risk management: Banks will be exposed to risks as they pursue integrated operations if the firewalls are not established effectively for the source, usage and occupation of funds as well as nested structures related to transactions between business lines and between banks and nonbank financial institutions.

• Risk contagion and risk concentration: Risks faced by branches or subsidiaries are likely to spread across the group. Without effective and efficient cross-market and cross-business risk management, banks might not be able to obtain an accurate understanding of the actual risk exposure, which might trigger off risk concentration.

• Risk control over related-party transactions: Under the model of integrated operations, transactions of individual entities with external counterparties might turn into intragroup transactions, in which certain risks might fail to be transferred out at the group level, or result in higher transactional cost at the group level.

Name Number of overseas entities LicenseICBC 412 entities in 42 countries and regions Corporate and personal banking, treasury business, investment banking

business, asset management, trust, financial leasing, insurance and other financial services

CCB 251 overseas entities of various levels in 29 countries and regions

Corporate and personal banking, treasury business, asset management, trust, financial leasing, investment banking, insurance and other financial services

ABC 18 overseas entities in 14 countries and regions RMB and foreign currency deposits, loans, clearing and settlement, asset custody, fund management, financial leasing, insurance and other businesses approved by both domestic regulators and overseas regulators across jurisdictions

BOC 578 entities in Hong Kong, Taiwan, Macao and other countries and regions

Corporate banking, personal banking, treasury business, investment banking business, insurance and others

BOCOM 20 branches (subsidiaries) and representative offices in 16 countries and regions

Banking, securities, insurance, funds management, trust and financial leasing

CEB 2 overseas branches Corporate and personal deposits, loans, payment and settlement, treasury business and other financial services Business license held by the parent company: insurance, trust, funds, futures and asset management

CMBC Establishing overseas business platform via Hong Kong branch and CMBC International Holdings Limited

Corporate and personal banking, treasury business, financial leasing, funds, asset management, investment banking business and other financial services

PAB Hong Kong representative office Commercial banking operation approved by regulators Business license held by the parent company: insurance, trust, futures, funds, financial leasing, investment banking and asset management

SPDB Hong Kong branch, SPDB International Holdings Limited

Commercial banking, financial leasing and trust business approved by PBOC and CBRC, as well as investment banking and funds management business under Type 4 (providing advice on securities), Type 6 (providing advice on institutional financing) and Type 9 (providing advice on asset management) licenses granted by Hong Kong SFC

CITIC CITIC International Financial Holdings Limited and CNCB (Hong Kong) Investment Limited incorporated in Hong Kong, and CITIC International Financial Holdings Limited wholly own the China CITIC Bank International Limited — it has 41 branches in Hong Kong, Macau, New York, Los Angeles, Singapore and mainland China

Corporate and retail banking services, treasury business, asset management, financial leasing and other nonbank financial services

CMB Hong Kong subsidiaries, such as Wing Long Bank Ltd. and CMB International Capital Corporation Limited, as well as Hong Kong branch; New York branch and representative offices in the US; London branch and representative offices in the UK; Singapore branch; Luxembourg Branch; and representative office in Taipei

Corporate and personal banking services, treasury business, asset management and other financial services

Source: Annual reports published by the listed banks, official websites

The Chinese banks continue to develop integrated operations as the market-oriented reform deepens. Large banks have sought to integrate their own comprehensive financial service capabilities by establishing new entities or acquiring financial institutions holding various types of financial licenses. These banks have endeavored to leverage the advantages of holding a full license for financial operation at the group level to diversify deposit and loan utilization, improve the capital market and provide cost-efficient financial services supporting structural adjustment as well as transformation and upgrading. At the same time, driven by the “going global” strategy, the B&R initiative and other national strategies, large banks and national joint-stock banks have accelerated their globalized operations by establishing presence in the global financial centers to improve their competitiveness in global financial markets.



In early 2017, the CBRC released the Guiding Opinions on Requiring the Banking Sector Serving the “Going Global” Enterprises to Enhance Risk Control (Yin Jian Fa [2017] No.1), requiring banking financial institutions to standardize their overseas operations, enhance the capability of supporting the Chinese enterprises going global, and establish a long-term, stable, sustainable and risk-controllable financial security system to support the B&R initiative. According to the Guiding Opinions, the “going global” Chinese banks should focus on enhancing risk management to address credit risk, country risk, compliance risk (e.g., AML and CFT compliance management), environmental risk and social risk. It also provides risk prevention and control recommendations for dozens of entities established by the Chinese banks in countries along the B&R.

Increased pressure from liquidity risk

In 2016, the liquidity supply and demand in the banking system experienced a sharper volatility due to interest rate hikes by the Federal Reserve and a declining balance of funds outstanding for foreign exchange, among other factors. The volatility and uncertainty was fueled by increased leverages by certain market participants, concentrated issuance of local government debt and VAT reform. In the first quarter of 2017, the interbank liquidity risk came under greater pressure.

The aggregate amount of interbank certificates of deposit (CDs) issued by the listed banks surged in the period from 2014 to 2016. In fact, interbank CDs are not the key source of funds for large commercial banks and PSBC as they have numerous outlets and stronger deposit-taking capacity. It is worth noticing that the interbank CDs issued by the joint-stock commercial banks grew rapidly in the past two years, accounting for about 7% of the total debt, particularly, with HX seeing this ratio at 9.68%. For the city and rural commercial banks, the ratio was even higher, at above 9%, with BHZ reporting a ratio of 21.49%.

In April 2017, the CBRC issued the Guiding Opinions on Risk Prevention and Control for the Banking Sector, requiring banking financial institutions to improve liquidity risk governance by improving risk monitoring coverage, strengthening management and control over key institutions, making innovations in risk prevention and control, executing stress tests periodically, and improving liquidity risk response plans. Specifically, banking financial institutions are required to include interbank business, investment business, custodian business and wealth management business into the scope of liquidity risk monitoring. The regulatory focus is placed on the banking financial institutions with an obvious mismatch between the source and use of funds, and the institutions with a higher proportion of wholesale funding. The CBRC also urges banks with rapidly growing interbank CDs or a higher proportion of interbank CDs in total interbank liabilities to rationally control the amount of interbank CDs and the scale of other interbank funding instruments. In addition, banking financial institutions are required to report to and communicate with the PBOC more effectively, so that the central bank can use the “short-term liquidity facility” to provide liquidity efficiently to the market.

Issuance of interbank CDs of the listed banks (in RMB million)

2014 Balance

2015 Balance

2016

Balance

Proportion of total

liabilitiesICBC 7,457 14,106 1,236 0.01%CCB - - - -ABC 7,985 7,172 10,152 0.06%BOC 1,996 13,295 51,088 0.31%BOCOM - - - -Large commercial banks

17,438 34,573 62,476 0.07%

CMB 24,832 176,245 188,248 3.40%IB 98,831 293,996 536,722 9.36%SPDB 85,272 305,310 519,888 9.48%CMBC 17,371 68,159 255,345 4.61%CITIC 23,686 171,356 269,923 4.87%CEB 32,591 146,531 347,067 9.21%PAB 21,636 192,848 233,349 8.48%HX 4,439 51,893 213,184 9.68%CZB 38,648 75,686 83,595 6.49%National joint-stock commercial banks

347,306 1,482,024 2,647,321 6.99%

BOB 16,864 86,789 183,919 9.32%BSH 28,138 106,322 214,360 13.08%BJS 4,979 27,649 107,743 7.12%BONJ 18,587 67,925 121,220 12.10%BJZ - - 26,229 5.29%

CQRCB - 29,847 49,487 6.61%

BONB 37,181 116,098 85,018 10.19%HSB 9,763 54,457 59,331 8.46%SJB - 65,385 68,089 7.93%HRB - 14,774 24,390 4.86%BTJ - 998 27,720 4.50%BZZ 1,504 20,039 37,063 10.77%BHZ 9,768 78,909 146,533 21.49%BGY 991 25,885 43,917 12.54%BCQ - 14,702 49,309 14.12%JTRCB 1,692 7,579 21,002 11.82%BQD 3,344 9,125 28,699 11.02%CSRCB - 2,988 5,994 5.01%WXRCB 2,020 2,793 5,193 4.49%JYRCB - - 4,105 4.32%

ZJGRCB Not disclosed 1,997 613 0.74%

WJRCB - 499 499 0.68%City and rural commercial banks

134,831 734,760 1,310,433 9.68%

PSBC - - - -All listed banks 499,575 2,251,357 4,020,230 2.80%



5



Continued capital replenishment via multichannel to meet regulatory capital requirements In 2016, the capital adequacy ratios (CAR) of the listed banks came under pressure as they experienced subdued growth in net profit and continued exposure to credit risk. Nonetheless, the ratios remained compliant with the regulatory requirements. The listed banks continued to move forward with external financing and enhanced capital bases typically through IPO of ordinary shares, and rights issue of ordinary shares and preference shares in both domestic and overseas securities markets. The average CAR of the listed banks as at 31 December 2016 stayed largely flat as compared to the level a year earlier.

2016

x14.31%

14.18%

12.68% 12.62%11.57% 11.80%

12.87%12.66%

10.46%11.13%

CAR 6 basis points

Capital adequacy ratio of the listed banks

2014 2015

15%

14%

13%

12%

11%

10%

9%

x14.02%

12.47%

11.30%

12.73%

9.56%



PSBC


All listed banks




Capital adequacy ratio of the listed banks率

2014 2015 2016

ICBC 14.53% 15.22% 14.61%CCB 14.86% 15.39% 14.94%ABC 12.82% 13.40% 13.04%BOC 13.87% 14.06% 14.28%BOCOM 14.04% 13.49% 14.02%Large commercial banks*

14.02% 14.31% 14.18%

CMB 12.38% 12.57% 13.33%IB 11.33% 12.29% 11.65%SPDB 11.29% 11.19% 12.02%CMBC 10.69% 11.49% 11.73%CITIC 12.33% 11.87% 11.98%CEB 11.21% 11.87% 10.80%PAB 10.86% 10.94% 11.53%HX 11.03% 10.85% 11.36%CZB 10.60% 11.04% 11.79%National joint-stock commercial banks*

11.30% 11.57% 11.80%

BOB 11.08% 12.27% 12.20%BSH 12.57% 12.65% 13.17%BJS 12.17% 11.54% 11.51%BONJ 12.00% 13.11% 13.71%BJZ 10.45% 10.50% 11.62%CQRCB 12.45% 12.09% 12.70%BONB 12.40% 13.29% 12.25%HSB 13.41% 13.25% 12.99%SJB 12.65% 13.03% 11.99%HRB 14.64% 11.64% 11.97%BTJ 12.61% 12.23% 11.88%BZZ 11.12% 12.20% 11.76%BHZ 12.12% 11.70% 11.88%BGY 13.54% 13.54% 13.75%BCQ 11.00% 11.63% 11.79%JTRCB 16.02% 14.76% 13.79%BQD 10.75% 15.04% 12.00%CSRCB 13.25% 12.51% 13.22%WXRCB 13.97% 13.59% 12.65%JYRCB 13.92% 13.99% 14.18%ZJGRCB 14.49% 15.07% 13.42%WJRCB 13.47% 13.58% 14.18%City and rural commercial banks*

12.73% 12.87% 12.66%

PSBC 9.56% 10.46% 11.13%All listed banks* 12.47% 12.68% 12.62%

Source: Annual reports published by the listed banks*Simple arithmetic average

To address the pressure on capital, an increasing number of city and rural commercial banks have stepped up the pace of planned IPO on domestic or overseas markets in an effort to enhance capital strengths and support business development. From January 2016 to January 2017, 13 banks successfully completed their IPO on the A-share or H-share market and raised a capital totaling RMB102.57 billion relative to three banks with total a capitalization of RMB14.05 billion in 2015, increasing by 333%► and 630% respectively. Particularly, PSBC completed its IPO on the Stock Exchange of Hong Kong in September 2016 and raised HKD59.15 billion, the largest IPO worldwide in the past two years.►1

1 The 2016 annual report of PSBC

Capital raised through IPO (January 2016–January 2017)

Listing date

Listing exchange

Capital raised(in RMB million)

CZB Mar 2016 Hong Kong 12,564 BTJ Mar 2016 Hong Kong 5,835 BJS Aug 2016 Shanghai 7,238 BGY Aug 2016 Shanghai 4,245 JYRCB Sep 2016 Shenzhen 972 WXRCB Sep 2016 Shanghai 826 PSBC Sep 2016 Hong Kong 50,861 CSRCB Sep 2016 Shanghai 951 BHZ Oct 2016 Shanghai 3,767 BSH Nov 2016 Shanghai 10,670 WJRCB Nov 2016 Shanghai 762 JTRCB Jan 2017 Hong Kong 3,086 ZJGRCB Jan 2017 Shenzhen 790 Total 102,567

2014

2banks were listed and raised capital of

RMB16.10 billion

3were listed and raised capital

of RMB14.10 billion

2016

13banks were listed and raised capital of

RMB102.60 billion

2015




In addition, SPDB and CITIC raised funds through non-public offerings of ordinary shares and BJZ raised funds through a H-share placement to improve common equity tier-1 CAR; whereas, the other listed banks made continued efforts to enhance their capital bases by issuing preference shares and tier-2 debt. In 2016, nine listed banks issued preference shares amounting to RMB163.9 billion and 10 listed banks issued tier-2 debt totaling RMB134.9 billion.

Meanwhile, some listed banks reported lower CARs as their risk-weighted assets grew faster than net capital. In particular, BQD’s CAR dropped by 3.04 percentage points from the end of 2015 as the bank’s rapidly-growing loans and investments led to a higher growth in risk-weighted assets in its efforts to prop up the real economy. These banks have developed capital replenishment plans tailored to their own circumstances.

It is worth noticing that the more stringent regulatory requirements have also placed constant pressure on the listed banks’ CARs amid the complex economic environment in which the banks saw increased NPLs, slower profit growth, expansion of business scale and rising demands for outbound investment, among other factors.

For example, on top of the minimum Basel III regulatory capital ratio of 8%, the Financial Stability Board (FSB) has issued the regulation that defines a global standard for minimum amounts of Total Loss Absorbency Capacity (TLAC) to be held by Global Systemically Important Banks (G-SIBs). The FSB requires a G-SIB to hold a minimum amount of regulatory capital (Tier 1 and Tier 2) plus long-term unsecured debt that together are at least 16%–20% of its risk-weighted assets, which takes effect in 2019. Although G-SIBs headquartered in the emerging markets are exempted temporarily from the TLAC implementation, preemptive measures are needed for the Chinese G-SIBs, such as ICBC, ABC, CCB and BOC, which should proactively transform their debt structure, follow up with the developments and implementation of new international regulations, and comprehensively consider the way of issuing funding instruments of various tiers, term, scale and performance in the secondary markets. Moreover, the PBOC, China’s central bank, has increased regulation through multiple measures, highlighted by the adoption of the Macro Prudential Assessment (MPA) in early 2016 and the inclusion of off-balance sheet wealth management business into broadly defined credit business, as well as higher requirements for key indicators such as leverage ratios and CARs.

To ease the pressure on capital, a number of the listed banks have unveiled future plans to replenish capital primarily through listing, rights issue of ordinary shares, preference shares, convertible bonds and tier-2 capital bonds. As at 6 April 2017, the CBRC had received listing applications from 13 city and rural commercial banks.2 Meanwhile, some city and rural commercial banks are moving actively to prepare for listing on the New Third Board. As the refinancing rules for listed companies were improved, more and more listed banks, such as CEB, CMBC, CITIC and JYRCB, tended to replenish their capital by issuing convertible bonds.3 Particularly, CEB issued RMB30 billion convertible bonds on 17 March 2017, which, as the first convertible bond issuance upon implementation of the new rules on refinancing, attracted close attention of the capital markets.

However, the growing assets have inevitably resulted in a continued decline in return on equity (ROE) as the overall net profit growth of the banking industry comes under pressure. In the long run, the key to easing the pressure on capital rests on the transformation of the banks’ development model towards an “asset-light” and “capital-light” model. This means that the transformation and asset quality, and efficiency improvement will be the baseline for the development of the banking industry going forward.

Source: Annual reports published by the listed banks*Only the banks that separately disclosed the figures have been included

Preference shares issued by the listed banks*

Date of issueAmount

(in RMB billion)

PAB Mar 2016 200 HX Mar 2016 200 CEB Aug 2016 100 BOB Jul 2016 130 BOCOM Sep 2016 450 BONJ Sep 2016 50 CITIC Oct 2016 350 HSB Nov 2016 60 CMBC Dec2016 99 Total 1,639

Source: Annual reports published by banks*Only the banks that separately disclosed the figures have been included

2016 bonds qualified as tier 2 capital issued by the listed banks (in RMB billion)

IB 300 CMBC 200 PAB 100 CZB 100 BONJ 100 BJZ 25 CQRCB 40 HRB 80 BZZ 30 BCQ 15 JTRCB 9 CSRCB 10 JYRCB 40 PSBC 300 Total 1,349

2 Official website of CSRC 3► Announcements published by the banks



“Asset-light” and “capital-light” transformation under way

The increasingly tightening regulation under the economic “new normal” and interest rate liberalization has posed a greater challenge to commercial banks that pursue the resource-saving development model, as the rapid growth traditionally driven by a “capital-heavy” and “capital-intensive” operational model has become unsustainable. Aligned with the strategic objective of building an “operation-light bank,” characterized with “capital-light” and “asset-light” model set by a growing number of banks, the solution for banks will be “obtaining higher value returns by adopting an asset and business system supporting risk control combined with an operational model that underpins less capital consumption, lower risk weight and more intensive operation.” Selected initiatives are presented as follows:

• ABC has proposed in its 2016-2020 Reform and Development Plan the transformation from “capital-heavy business model” to “capital-light business model”.

• CMB aims at transforming itself into an “operation-light bank” in a period of five years and propelling the transformation process by focusing on “capital-light,” “asset-light” and “operation-light” model.

• CEB has emphasized its strategic objective of making “asset-light” and “outlet-light” as key enablers to propel the structural adjustment and building a capital-saving bank.

• CITIC has defined in its strategic plan the development direction guided by the “light” concept of “capital-light,” “asset-light” and “cost light”.

• CMBC is committed to pushing for an intensive development model featuring “capital-light” and continuously improving the income from fee-based businesses, with the focus placed on key industries, key regions and key customer bases.

• PAB is committed to moving forward with “capital-light” and “asset-light” corporate banking.

• SPDB is focused on expediting the implementation of its “group-wide professional, digitalized, light-duty, internationalized and intensive operation” strategy.

In 2016, a few listed banks made some improvements in the ability to drive endogenous capital replenishment by proactively pushing for the development of “asset-light” business. For example, ICBC, ABC, CCB, BOC and CMB ensured stable capital growth primarily by means of retained profit instead of replenishing capital through external channels. Particularly, under the philosophy of building an “operation-light bank,” CMB increased the proportion of “asset-light” business such as retail credit and improved profitability by optimizing resource allocation and propelling structural adjustment, thus seeing a 5.01% growth in risk-weighted assets under advanced capital measurement approaches (with the bottom-line requirements during the parallel period being considered), lower than the 7.52% growth in net profit. Benefiting from lower capital consumption, CMB maintained stable profit growth, exhibited continued improvement in capital adequacy ratios, and achieved further development featuring endogenous capital growth for three consecutive years.4

As compared with the earlier two years, the listed banks also scaled back the issuance of preference shares and tier 2 debt that had been the primary means of capital replenishment.

4 The 2016 annual report of CMB

Operation-light bank transformation

“Capital light”, “Asset light”, “Cost light”, “Light-duty”

Achieving higher value return by adopting an asset and business system supporting risk control combined with an operational model that underpins less capital consumption, lower risk weight and more intensive operation

CMBBuilding an “operation-light

bank” by focusing on “capital light”, “asset light” and

“operation light” CITICPursuing “capital light”,

“asset light” and “cost light” development

ABCTransforming into

“capital-heavy” business model“operation light”

CMBCPushing for an intensive

development model featuring “capital light”

SPDBImplementing the “group-wide professional, digitalized, light-

duty, internationalized and intensive operation”

strategy

CEBBuilding a capital-saving

bank

PABMoving forward with

“capital light” and “asset light” corporate banking



In 2016, the listed banks also proactively adjusted their credit structures, compressed the assets in high-risk areas or exited industries with excess capacity, increased the size of low-risk and high-quality retail credit assets, vigorously developed lower capital-consuming and higher value-added businesses such as investment banking, financial market business, asset management and private banking, in a bid to develop an asset and business system that features lower risk weight and supports risk control. Some banks tried to improve deposit pricing and cost control and optimize outlet distribution for better operating results.

Meanwhile, the extensive application of FinTech and mobile internet technology has fueled the “operation-light” transformation of the listed banks. Particularly, by focusing on the implementation of the “mobile first” strategies, CMB substantially increased both the number and volume of transactions via electronic channels and reduced the floor size of outlets, thus saving over RMB57 million in rental and maintaining a lower cost-to-income ratio of 27.62%.

The listed banks have not yet achieved a full completion of the “light” model transformation in spite of initial success made in exploring an “asset-light” and “capital-light” development model. With overall profit growth under pressure, the listed banks need to focus more on the development of businesses featuring lower capital consumption or zero capital consumption, adjust their assets and liabilities structure and business structure, and step up efforts to improve product innovation capability, pricing power, business integration capacity, profitability and return on capital.

Preference shares issued by the listed banks (2014–16)(in RMB billion)

2,102

Source: EY (calculated based on data published in the annual reports of listed banks)

2014

1.745

2015 2016

1,639

Tier 2 debt issued by the listed banks (2014–16)(in RMB billion)

Source: EY (calculated based on data published in the annual reports of listed banks)

2014

3,014

1,502

2015 2016

1,349


6



In 2016, the listed banks continued to embrace the key national strategies of the B&R initiative, the Beijing-Tianjin-Hebei integration initiative, and the Yangtze Economic Belt initiative, proactively capturing the new growth drivers of the regional economy, and capitalizing on the opportunities arising from the strategic emerging industries, advanced manufacturing industries, and the transformation and upgrade of traditional industries. In addition, the listed banks also continued to reduce credit exposure to industries burdened with overcapacity, implemented market-based and legalized debt-to-equity swaps, increased the amount of small and micro business loans and agricultural loans, and offered full support to the international cooperation in production capacity and Chinese companies “going global.”

Serving the B&R initiative and seeking new growth driversOn 14 and 15 May 2017, the Belt and Road Forum for International Cooperation was held in Beijing. This was the highest-level official forum since China’s B&R initiative was first announced three years ago. According to the March 2017 press conference of the Chinese People’s Political Consultative Conference (CPPCC), China’s direct investment in the 53 countries and regions along the routes of the B&R exceeded USD14.53 billion in 2016, and during the same period, the value of new contracts that Chinese companies signed with 61 countries and regions along the trading routes reached USD126.03 billion.

In 2016, the listed banks continued to increase their support for the B&R. Large commercial banks have raised to support the B&R to the strategic level by taking concrete actions to respond to the initiative. For example, ICBC has set up 127 entities in 18 countries and regions along the routes of the B&R. In 2016, ICBC granted a total of USD23.5 billion loans in countries along the routes of the B&R, up by 35.8% y-o-y. BOC newly issued USD30.7 billion loans to countries along the routes of the B&R, with the cumulative newly issued credit reaching USD60 billion. BOC closely follows approximately 420 key projects within the B&R key project portfolio, with total project investment exceeding USD400 billion and total intended expenditure reaching approximately USD94.7 billion. National joint-stock commercial banks and city and rural commercial banks also supported the B&R in their own way for fear of being left behind. CITIC seized opportunities in infrastructure construction along the routes of the B&R by setting up the B&R fund, the first of its kind. By the end of 2016, the size of CITIC’s B&R fund reached RMB86.4 billion. The fund covered 12 key cities along the routes of the B&R, including Shanghai, Guangzhou and Hangzhou, and has effectively supported key infrastructure projects such as rail transport and renovation of run-down areas. BOB supported the B&R by signing a comprehensive strategic cooperation agreement with the provincial government of Xinjiang Uyghur Autonomous Region and Xinjiang Production and Construction Corps to support key enterprises and the construction of key projects, and by underwriting RMB2 billion five-year medium-term notes for Urumqi Urban Construction Investment Group. BONJ won a bid for the setup of the Jiangsu Provincial Government Investment Fund and participated in the Coastal B&R Fund.

Supporting the RMB internationalization strategy and helping Chinese companies “go global”During the 13th five-year plan, China presses for “two-way opening up,” bringing historic opportunities for the Chinese banking industry. With the gradual unfolding of the national strategies such as the B&R, RMB internationalization and free-trade zones, the Chinese banking industry is blessed with unprecedented opportunities to participate in the international banking competition.

In the three years since the B&R was first announced in September 2013, the listed banks have made significant strides in setting up overseas entities. In 2016, the listed banks continued efforts to set up overseas branches with the aim of providing more diversified and premium financial services to Chinese enterprises “going global” and participating in the construction of the B&R. Meanwhile, it is also worth noting that, in 2016, the listed banks entered the strategic optimization stage of their internationalization strategy as the Chinese banks faced an increasingly complex overseas operating environment, sustained domestic operating pressures as well as significantly elevated compliance risks such as more stringent overseas anti-money laundering regulations.



Network of overseas entities of the listed banks*

By the end of 2016, BOC had overseas institutions in 50 countries and regions, 19 of which are countries along the B&R. In addition, BOC established correspondent relationships with more than 1,600 financial institutions in 179 countries and regions.

BOC

Source: Annual reports published by the listed banks*Only the banks that separately disclosed the figures have been included

CEB International Investment Co., Ltd. started operation, the Seoul branch opened for business, and the establishment of CEB (Europe) S.A. and CEB Luxembourg branch obtained approval from the CBRC. CEB

In 2016, CMB’s London Branch obtained approval to start business, and China Merchants Bank (Europe) Co., Ltd. obtained approval from the CBRC to prepare for establishment. By the end of 2016, CMB’s overseas entities include overseas branches in Hong Kong, New York, Singapore, Luxembourg, London and representative offices in London, New York and Taipei.

CMB

In 2016, CITIC obtained the CBRC approval to upgrade the London representative office to London branch. CITIC’s Sydney representative office officially opened for business, and the establishment of Hong Kong branch saw good progress. CITIC signed a memorandum of understanding with Kazakhstan’s Halyk Bank, and is expected to become the first Chinese national joint-stock commercial bank to acquire a bank in Kazakhstan.

CITIC

By the end of 2016, ICBC established 412 institutions in 42 countries and regions and indirectly covered 20 African countries as a shareholder of Standard Bank Group. ICBC also established correspondent banking relationships with 1,507 overseas banking institutions in 143 countries and regions, making its service network covering six continents and important international financial centers around the world.

ICBC

ABC’s Dubai Branch officially obtained approval from the local regulatory authorities and it was appointed as the RMB clearing bank for the United Arab Emirates by the PBOC. ABC’s applications for the establishment of a representative office in Sao Paulo, branches in London and Macau were approved by the CBRC. The overseas applications for the establishment of the Hanoi Branch and the Vancouver Branch ran smoothly and saw good progress. By the end of 2016, ABC established 18 overseas institutions in 14 countries and regions, and set up the Sino-Congolese Bank for Africa by way of equity joint venture in the Republic of Congo, forming an overseas network covering Asia, Europe, North America, Oceania and Africa.

ABC

BOCOM achieved five successful “international expansion” targets in 2016, including the establishment of branches in London and Luxembourg, the Bank of Communications (Luxembourg) S.A. Rome and Paris branches, and the acquisition of a controlling stake in Banco BBM (BOCOM BBM). By the end of 2016, BOCOM set up 20 overseas banking entities in over 16 countries and regions, including branches in Hong Kong, New York, Tokyo, Singapore, Seoul, Frankfurt, Macau, Ho Chi Minh City, San Francisco, Sydney and Taipei, London Branch of BOCOM or Bank of Communications (UK) Limited, Bank of Communications (Luxembourg) Limited or Luxembourg Branch of BOCOM, Brisbane Branch of BOCOM, Bank of Communications (Luxembourg) S.A. Paris Branch, Bank of Communications (Luxembourg) S.A. Rome Branch, Banco BBM (BOCOM BBM) and representative office in Toronto. It also established 65 overseas banking outlets in total (excluding the representative office).

BOCOM

In 2016, the Zurich Branch and Chile Branch were officially opened. CCB Malaysia and Warsaw Branch of CCB Europe were granted licenses and the acquisition of PT Bank Windu Kentjana International Tbk was completed. By the end of 2016, CCB maintained wholly-owned operating subsidiaries including CCB Asia, CCB London, CCB Russia, CCB Europe, CCB New Zealand and CCB Malaysia, and held 99.31% and 60.00% of the total share capital of CCB Brazil and CCB Indonesia, respectively. CCB owned institutions covering 29 countries and regions including Hong Kong, Singapore, Germany, South Africa, Japan, South Korea, the USA, the UK, Vietnam, Australia, Russia, Dubai, Taiwan, Luxembourg, Macau, New Zealand, Canada, France, Netherlands, Spain, Italy, Switzerland, Brazil, Cayman Islands, Ireland, Chile, Indonesia and Poland. The number of overseas institutions at various levels of the Group totaled 251.

CCB



With the steady advancement of the RMB internationalization strategy, the listed banks took the initiative in setting up RMB clearing banks. As at 31 December 2016, the number of RMB offshore clearing banks, which had been set up by five listed banks and authorized by the People’s Bank of China, reached 23.

Distribution of RMB offshore clearing banks as at 31 December 2016

Supporting the supply-side structural reform

To support the supply-side structural reform, the listed banks have continuously adjusted credit policies targeting various industries to optimize credit structure. The listed banks have increased credit support for the industries undergoing structural upgrade, traditional industries with competitive advantage, green industries and environment-friendly industries, strategic emerging industries, and modern services industries. At the same time, following the principles of “cutting overcapacity and excess inventory, deleveraging, reducing costs, and strengthening weak points,” the listed banks set limits to the industries burdened with overcapacity and kept reducing credit extended to steel, concrete and electrolytic aluminum industries. The listed banks also adjusted the amount of loans granted to real estate industries and local government financing vehicles, and increased the amount of small and micro business loans and agricultural loans.

In terms of optimizing credit structure, in 2016, ICBC cumulatively granted project loans totaling RMB946.6 billion, invested primarily in key areas such as transportation, public infrastructure, improvement of key urban functions, premium government procurement services, and advanced manufacturing industries. Over the past three years, ICBC has kept issuing a large amount of project loans. By the end of 2016, ICBC’s project loans as a proportion of corporate loans reached 51.7%. Similarly, CCB continued to consolidate its traditional advantages in infrastructure industries and, over the past three years, realized steady growth in loans issued to infrastructure industries. As at 31 December 2016, CCB’s loans to infrastructure industries reached RMB2,900 billion, accounting for 49.4% of its domestic corporate loans. Meanwhile, CCB continued to reduce loans issued to the five industries burdened with overcapacity including steel, concrete, electrolytic aluminum, plate glass and shipbuilding. CCB was the first to implement market-based debt-to-equity swap arrangements with centrally-administered state-owned enterprises (SOEs), locally-administered SOEs and private enterprises, signing a total of RMB222 billion market-based debt-to-equity swap agreements with customers. BOCOM made significant efforts to develop green finance, realizing a continued growth in customers and projects in the fields of green economy such as low-carbon economy, energy saving and environmental protection. BOCOM successfully issued the first phase of green bonds totaling RMB30 billion.

In terms of small and micro business loans, many listed banks increased credit support in 2016. According to the data published in the 2016 annual reports, the total balance of small and micro business loans issued by five large commercial banks increased by RMB628.9 billion from the beginning of 2016, with the growth of small and micro business loans exceeding the average loan growth for several banks. In the case of ABC, the balance of small and micro business loans grew by RMB115.4 billion in 2016, growing faster than the total loan balance for eight consecutive years.

Source: Official website of the People’s Bank of China

Moscow

Lusaka

Seoul

Bangkok

Sydney

Toronto

Santiago

New York

Macau

Buenos Aires

Hong Kong

Johannesburg

Doha

Dubai

Budapest

Frankfurt

LondonParis

Luxembourg

Zurich

Taipei

Kuala LumpurSingapore

RMB Offshore Clearing Bank set up in 2015 and before

RMB Offshore Clearing Bank set up in 2016



Compared with the large commercial banks, city commercial banks placed even more emphasis on small and micro business loans. According to the annual reports, as at 31 December 2016, the balance of BOB’s small and micro business loans (as defined by the national standard) reached RMB290.8 billion, up by 22% from the beginning of the year and accounting for 49% of the total corporate loan balance. HRB increased the amount of credit extended to small and micro businesses for three consecutive years, with the size of microcredit reaching RMB167.7 billion by the end of 2016, up by 49.9% and accounting for 83.2% of the total lending.

ABC is undoubtedly a prime example in the area of agricultural loans. In 2016, ABC further increased support for “agriculture, rural areas and farmers” and poverty alleviation, increasing loans granted to 832 key counties of national poverty alleviation by RMB92.0 billion, representing a growth exceeding the bank’s average loan growth by nearly 6 percentage points.


7Exploring the future shape of banking by tapping into FinTech


FinTech experienced rapid development in 2016, and buzzwords such as big data, artificial intelligence, blockchain, cloud computing, mobile payment and biological identification have become more prevalent. FinTech has changed and will continue to bring profound changes to the products and service offerings, business models and operating concepts of the banking industry. It will drive the transformation and upgrade of the traditional financial services industry and help financial institutions to achieve innovation in products and service offerings, and business models. FinTech can not only be used to reduce the operating cost of banks and improve customer experience, but can also help the banking industry to better capitalize on its customer service experience by making more targeted marketing plan and more granular risk management plan.

In 2016, the listed banks continued to accelerate the development of internet finance, making further progress in the development and upgrade of internet finance channels such as internet banking, mobile banking, WeChat banking and direct banking. It is worth noting that, with the rapid development of internet finance, the growth in the number of mobile banking users noticeably exceeded the growth in the number of internet banking users.

Internet bankingBased on the data disclosed by 19 listed banks in their 2016 annual reports, as at 31 December 2016, total number of internet banking users reached 856 million, up by 41.78% from the prior year-end.

Mobile banking

Based on the data disclosed by 20 listed banks in their 2016 annual reports, as at 31 December 2016, total number of mobile banking users reached 805 million, up by 52.73% from the prior year-end.

Number of internet banking users of listed banks* (Unit: 10,000)率率

2015 2016 Growth rateCCB 21,280 24,162 13.54%ABC 15,378 19,388 26.08%BOC 12,531 13,685 9.21%CMB 2,182 2,081 (4.63%)IB 933 1,088 16.61%SPDB** 1,691 1,926 13.90%CMBC** 1,451 1,625 11.99%CITIC** 1,803 2,308 28.01%CEB 2,154 2,487 15.46%HX*** 408 512 25.50%CZB Not disclosed 46 N/ACQRCB 198 251 26.77%HSB 171 231 35.09%SJB 13 20 53.85%HRB 95 145 52.63%BZZ*** 28 45 60.71%JTRCB Not disclosed 26 N/ABQD 55 71 29.09%PSBC** Not disclosed 15,500 N/A

Number of mobile banking users of listed banks (excluding telephone banking)* (Unit: 10,000)

2015 2016 Growth rate

CCB 18,284 22,321 22.08%ABC** 14,000 16,900 20.71%BOC 7,999 9,440 18.01%CMB 2,784 4,181 50.18%IB 832 1,197 43.87%SPDB 1,150 1,900 65.22%CMBC 1,903 2,475 30.06%CITIC 1,273 1,958 53.81%CEB 2,203 2,691 22.15%PAB*** 1,395 2,610 87.10%HX*** 349 588 68.61%CZB Not disclosed 44 N/ACQRCB 376 533 41.76%HSB 66 131 98.48%SJB 15 35 133.33%HRB Not disclosed 22 N/ABZZ**** 21 44 109.52%JTRCB Not disclosed 43 N/ABQD 50 77 54.00%PSBC Not disclosed 13,300 N/A

Source: Annual reports published by the listed banks*Only the banks that separately disclosed the figures have been included; data have been rounded to the nearest 10,000, on which the calculation of 2016 growth rates is based.**Figures for PSBC, SPDB, CMBC and CITIC are personal internet banking data.***HX only disclosed the y-o-y growth of internet banking users in its 2016 annual report; so the 2016 number of users was calculated based on the number of users in 2015 and this y-o-y growth rate.****The number of BZZ’s internet banking users in 2015 was calculated based on the number of users for 2016 as well as the new users acquired during 2016.

Source: Annual reports published by the listed banks*Only the banks that separately disclosed the figures have been included; data have been rounded to the nearest 10,000, on which the calculation of 2016 growth rates is based. **Figures for ABC are handsets banking data, and the unit disclosed in its annual report was RMB100 million users.***Figures for PAB are pocket banking data; figures for HX are mobile banking data; HX only disclosed the y-o-y growth rate of mobile banking users in its 2016 annual report, so the number of mobile banking users in 2016 was calculated based on the number of users in 2015 and this y-o-y growth rate. ****The number of BZZ’s mobile banking users in 2015 was calculated based on the number of users for 2016 as well as the new users acquired during 2016.



WeChat banking

Since the first “WeChat Bank” was established by CMB in July 2013, a number of listed banks have launched WeChat banking and seen rapid growth in the number of WeChat banking users. The number of WeChat banking users continued to grow rapidly in 2016.

Listed banks rush to incorporate FinTech into banking operations

Direct banking

As an effective countermeasure against competition from internet finance companies, the direct banking business of commercial banks experienced explosive growth over the past two years, winning back market share on the strength of its electronic and low-cost advantages. In 2016, direct banking continued its strong growth momentum, providing a powerful driving force to the banking industry’s continued innovation in financial services. The listed banks have begun to incorporate into direct banking the characteristics of the internet such as big data, mobility and social media, continuously optimizing and expanding customer experience, actively bringing in innovative business models and strengthening external cooperation to win more space for development. At the start of 2017, China Direct Banking Alliance was set up in Shenzhen, with the aim of promoting the transformation and upgrading of banking services and propelling the development of direct banking in China.

As direct banking can be used to remove geographical barriers, respond to the impact of interest rate liberalization and enable banks to provide more precise services to target customers from a wider area with lower cost, national joint-stock commercial banks and city and rural commercial banks have remained the key market players driving direct banking business. Direct banking is primarily applied to deposits, wealth management, remittances, loans and payment businesses.

Despite the rapid increase in the number of direct banks over the past two years, problems such as product homogeneity, lack of independent operation, unclear strategic positioning still exist and are in a dire need of improvement and breakthrough.

Number of WeChat banking users of listed banks* (Unit: 10,000)

2015 2016 Growth rate

CCB 3,293 5,324 61.68%CMB 1,032 1,122 8.72%CMBC 344 1,687 390.41%CEB 1,034 1,855 79.40%CZB Not disclosed 97 N/ACQRCB 18 32 77.78%HRB 30 85 183.33%BZZ Not disclosed 16 N/AJTRCB Not disclosed 8 N/A

Source: Annual reports published by the listed banks*Only the banks that separately disclosed the figures have been included; data have been rounded to the nearest 10,000, on which the calculation of 2016 growth rates is based.

The number of listed banks that mentioned the application of FinTech in 2016 annual reports

Big data Mobile payment

Cloud computing/

cloud platform

Block- chain

Artificial intelligence

Biological identification

QR code

35

30

25

20

15

10

5

0

30

21

13

97

46

A number of listed banks mentioned FinTech in their 2016 annual reports, suggesting that the listed banks are paying increasing attention to the application of FinTech. For example, ICBC set up “seven innovation labs” at the head office level covering internet finance, big data, artificial intelligence, cloud computing, blockchain and biological identification, where nearly 500 employees are engaging in cutting-edge technological research. In 2016, CCB launched over 1,900 innovative products, established new business models including global cash management and smart scenario applications, and innovated the customer segmentation and operational methodology. CMB leads the banking industry by investing RMB5 billion in IT every year. From 2017 onward, CMB vows to invest 1% of the annual net profit in financial innovation and FinTech. IB has already set up blockchain research team and is preparing to set up artificial intelligence lab, and will explore business application scenarios based on business needs.

Source: EY (calculated based on the annual reports published by the listed banks)

Most of the listed banks mentioned the application of big data in their 2016 annual reports. The analysis and application of big data is mainly reflected in targeted marketing, risk management and control, and product innovation. For example, by leveraging the big data techniques, ICBC applied targeted marketing strategies and allocated assets appropriately for retail customers based on the preferences of different customer segments in terms of consumption, investment, purchase channels and product choices, thereby effectively expanding the size of wealth management customers and lifting the sales of wealth management products. CCB leveraged on big data and models to enhance risk early-warning system, and introduced big data and IT system control approaches to strengthen the comprehensive defensive line for compliance across the front, middle and back offices. With the help of big data and internet technology, CEB developed the standardized e-channel self-service loan, which provided innovative experience of small-amount consumer finance.

Big data



Mobile paymentIn 2016, Ping An Group, CMB and CMBC entered into partnership with international financial innovation company R3, and formally joined the R3 blockchain consortium.5 R3 CEV is a blockchain start-up headquartered in New York City. It leads the R3 blockchain consortium which has so far attracted 42 large banks. CMBC has already set up a cloud platform for blockchain services, and is conducting in-depth research into the application of blockchain in terms of consensus algorithm, smart contract, transactional accounting, data transfer, smart wallet and decentralization.

Based on the information disclosed in the 2016 annual reports, blockchain technology has already been applied by the listed banks to asset custody system, financial products trading platform, mobile digital bills of exchange platform, and charity donation platform.

In the EY report entitled “Implementing blockchains and distributed infrastructure”, EY listed the potential applications of distributed infrastructure technology in clearing and settlement, trade finance and supply chain management, loyalty points, insurance claims management and Internet of Things. The listed banks should consider how to make blockchain technology suited to their business needs and work out how to combine blockchain with existing technologies to significantly improve the possibility of successful application of blockchain and distributed infrastructure.

In 2016, more listed banks launched mobile payment products such as Apple Pay, HCE Cloud Quick Pass and Samsung Pay, as well as UnionPay Cloud Quick Pass Huawei Pay and UnionPay Cloud Quick Pass Mi Pay.

By the end of April 2017, the official websites of Apple (China), Samsung (China) and China UnionPay disclosed that Apple Pay, Samsung Pay, UnionPay Cloud Quick Pass Huawei Pay and UnionPay Cloud Quick Pass Mi Pay have respectively started cooperation with 19, 12, 20 and 21 listed banks.

In late 2016, the Chinese State Council published the 13th Five Year National Informatization Plan, incorporating blockchain technology into this plan for the first time and positioning it as a strategic, cutting-edge technology. The blockchain technology, which has attracted much attention from the banking industry, has characteristics such as decentralization and distributed ledger, and enables people to store and trade in digital assets that can circulate within the blockchain system. It is not prone to loss or tampering, and has better safety and non-repudiation features.

Blockchain

Examples of blockchain application in enterprises6

5 “Minsheng Bank joined the R3 block chain alliance,” www.cnstock.com, news.cnstock.com/news,bwkx-201611-3944286.htm, 8 November 20166 Extracted from EY report entitled “With blockchain, what comes first, opportunity or threat?”

Blockchain use cases in the enterprise

Value plays (Develop new value-add plays to monetize)

Cost plays (Develop new workflows and operational processes to drive down costs)

External view

Internal view

Private/ New

marketsSocial

engineering

Collateral management

Regulation/ Risk

management

Issuance

Internal audit

Surveillance

eKYC

Investment advice

Suitability and appropriateness

Documentation and contracts

Analysis and modeling

(e.g., stress testing)

Systems and controls (e.g., reconciliation)

Branding and

marketing

Clearing and settlement

Cash management

Regulatory reportingRecord of

ownership/ Register



7 “China Construction Bank and Alibaba and ants gold service group signed a strategic cooperation agreement,” China Construction Bank, www.ccb.com/ cn/ccbtoday/ccbpaper/20170401_1491008431.html, 5 April 2017

In 2016, PSBC adopted the “Hyperledger Fabric” structure and successfully applied the blockchain technology to physical production by rolling out an asset custody system based on blockchain. It was the first example of successful application of blockchain technology to core business system in China’s banking industry.

Case study: Application of blockchain

Source: 2016 annual report of PSBC

In respect of retail banking, in December 2016, CMB formally rolled out an innovative wealth management platform and the first robo-advisor in the Chinese banking industry called “Machine Gene Investment,” positioning it as the start of a transition toward more personalized and intelligent customer service. Less than one quarter after the application went live, the total purchase amount by users exceeded RMB2 billion, and the average purchase amount of the users was RMB36,900.

Listed banks are stepping up cooperation with FinTech companies

China’s listed banks are stepping up cooperation with FinTech companies, competing with one another to utilize new technologies or new business models to transform and upgrade existing banking businesses. The listed banks have been actively deploying new FinTech such as big data, cloud computing, blockchain and artificial intelligence to shape brand new core competencies.

In January 2017, Baixin Bank, the direct bank jointly initiated by CITIC and Baidu, obtained permission from the CBRC for its establishment. Baixin Bank is China’s first direct bank jointly initiated by an internet company and a traditional bank and China’s first direct bank that is operated as an independent legal entity. CITIC also actively promoted technological innovations in internet finance by creating the “5+N” internet product system around its five core partners of Tencent, Baidu, Alibaba, JD.com and dianping.com. In addition, CITIC joined hands with Uber Technologies, a transportation network company with a global presence, and launched a co-branded credit card, the first of its kind for Uber Technologies. This co-branded credit card serves to combine the resources of the platforms of both sides to realize seamless payments for car rides globally.

Artificial intelligence: Robo-advisors

In March 2017, CCB and Alibaba or Ant Financial entered into a strategic partnership. The two sides will jointly promote the online CCB credit card issuance business, offline and online channel business cooperation, and electronic payment business cooperation, and integrate the credit system. In the future, the two sides will also realize the mutual recognition and scanning of payment by QR code, and Alipay will support payments from CCB’s mobile banking app.7

Looking forward, the listed banks must be more capable of applying technologies, become more customer-centric, embrace new concepts and have the great flexibility to take immediate action. At the same time, to switch the way of thinking, banks must be ready to recruit talents with the new skills needed in various banking businesses.


8Improved efficiency through outlet transformation and continued efforts to propel operational reform


Against the backdrop of fast-growing mobile internet technology and evolving customer demands and habits, for banks that aim at improving operational efficiency, the effective solution is to actively expedite outlet transformation and upgrading, promote the synergy of online and offline channels, and optimize the structure of human resources, especially in a time when the banks face the challenge of narrowing net interest margin and slowing profit growth.

According to the Report on Service Improvement of China’s Banking Sector in 2016 published by the China Banking Association in March 2017, the outlet distribution of the Chinese commercial banks proved to be more reasonable, and as of the end of 2016, they had established more than 3,800 new outlets, rebuilt more than 9,400 outlets, and set up 6,362 community sub-branches and 1,540 small and micro sub-branches. Meanwhile, the Chinese banks accelerated the upgrading of smart outlets by migrating those frequent, complex and time-consuming business activities to smart transaction equipment, and continuously upgraded e-banking channels to improve operational efficiency and bring new experience to customers. By the end of 2016, the Chinese commercial banks had established 161,000 automatic self-service outlets and equipped the outlets with 794,100 pieces of self-service equipment, with the aggregate self-service transaction amount growing by 5.95% y-o-y, the total number of off-counter transactions reaching 177.714 billion, up by 63.68% y-o-y, and the average off-counter transaction rate standing at 84.31%, an increase of about 7 percentage points from the end of 2015.

In 2016, the listed banks, collectively as a key component of China’s banking industry, remained customer-centered, and strategically accelerated the establishment and optimization of outlets across key regions to drive smart outlet transformation and operation-light transformation, in an effort to address customers’ “last mile” service needs and improve the banks’ ability to serve the real economy efficiently and effectively. By the end of 2016, the number of physical outlets had increased steadily and the coverage of services expanded continuously for all the listed banks and other joint-stock and city and rural commercial banks.

Number of outlets of listed banks*

2014 2015 2016

ICBC 17,460 17,498 17,200 CCB 14,880 14,945 14,985 ABC 23,620 23,679 23,692 BOC 11,514 11,633 11,556 BOCOM 2,839 3,197 3,350 Large commercial banks

70,313 70,952 70,783

CMB 1,431 1,717 1,819 IB 1,435 1,787 2,003 SPDB 1,295 1,660 1,843 CMBC 1,021 2,806 3,003 CITIC 1,272 1,394 1,465 CEB 952 1,048 1,122 PAB 747 997 1,072 HX 590 789 886CZB 129 133 171 National joint-stock commercial banks

8,872 12,331 13,384

BOB 325 441 503 BSH 311 314 315 BJS 512 534 541 BONJ 132 146 162 BJZ 177 185 201 CQRCB 1,772 1,773 1,777 BONB 245 283 312 HSB 260 338 406 SJB 150 171 190 HRB 332 352 355 BTJ 262 313 337 BZZ 94 117 132 BHZ 159 182 191 BGY 174 209 289 BCQ 123 130 136 CSRCB 131 139 142 WXRCB 111 113 73 WJRCB 68 72 75 City and rural commercial banks

5,338 5,812 6,137

All listed banks 84,523 89,095 90,304

All listed banksSource: Annual reports published by the listed banks*Only the banks that separately disclosed the figures have been included



In addition to the optimization of physical outlets, the Chinese banks further improved business processes and upgraded the functionalities of online banking, mobile banking and WeChat to effectively reduce the burden on outlets, thus enabling over 90% of outlet business to be replaced with e-banking channels.10 Banks that witnessed an increase in e-banking transactions disclosed relevant data as follows:

• In 2016, the number of e-banking transactions of ICBC rose by 1.8 percentage points to 92%.

• For CCB, the volume of transactions via e-banking and self-service channels reached 95.58%, an increase of 7.55 percentage points from 2015.

• The number of e-banking transactions of ABC reached 31.466 billion, up by 50.3% from 2015, representing 96% of the total transactions in 2016.

• For BOC, 90.74% of transactions at outlets were processed via e-banking channels.

• For BOCOM, e-banking channels were used to process 91.42% of the total transactions, up by 3.29 percentage points from the start of 2016.

In contrast, the physical outlets posted slower growth and the tellers tended to be less needed relatively as the banks continuously improved the utilization of e-banking by actively adjusting and optimizing their outlet distribution. Statistics from the past three years show that the listed banks had experienced slower growth y-o-y in total employees. Particularly, five large state-owned banks had a total of 1.722 million employees as at the end of 2016, a decrease of 17,700 employees or by 1.02% from that of 2015. CMB reported a larger y-o-y decrease in the number of employees among the joint-stock banks as it reduced the percentage of staff dispatched by external parties and outsourced the non-core business duties previously taken by such dispatched staff to professional service providers on condition that the risks and operational quality remained controllable.

8 Annual reports published by banks9 Report on Service Improvement of China’s Banking Sector 2016 published by China Banking Association, 15 March 201710 Annual reports published by banks

It is worth noticing that the five large commercial banks for the first time saw their outlets decrease. In 2016, the top five banks continuously optimized the distribution of outlets and accelerated “keeping leaner” by closing inefficient outlets to control the total outlet number, in a bid to upgrade the outlets with “smart” functions and “light” features. Through these efforts, the total number of outlets of the banks reduced to 70,783 as at the end of 2016 from 70,952 a year earlier, a decrease of 169 or by 0.24%. Specifically, in a continued effort to implement the outlet optimization project through new establishment, closure, relocation and capacity enhancement, ABC “trimmed” about 1,800 inefficient outlets, established more than 1,000 off-counter self-service outlets in counties, and additionally built more than 400 smart outlets in small towns where smart outlets used to be unavailable; upon the completion of smart-function upgrading of 2,683 outlets, BOC’s smart outlets represented 50% of its total domestic outlets;8 and ICBC had established more than 10,000 smart outlets, accounting for over 60% of the total, where more than 90% of common personal banking activities can be processed via smart channels. Additionally, ICBC is expected to achieve a full coverage of smart service functions across its domestic outlets in 2017.9

Changes in the number of banking outlets of five large commercial banks

2012 2013 2014 2015 2016

72,000

71,000

70,000

69,000

68,000

3%

2%

1%

0%

-1%

2.43%

1.02%

0.42%

0.91%

-0.24%

Number of outlets

Source: Annual reports published by listed banks

Outlet growth rate



Number of employees of the listed banks(exclusive of subsidiaries’ employees)*

2014 2015 2016

ICBC 462,282 466,346 461,749

CCB 372,321 369,183 362,482

ABC 493,583 503,082 496,698

BOC 308,128 310,042 308,900

BOCOM 93,658 91,468 92,556

Large commercial banks

1,729,972 1,740,121 1,722,385

CMB 75,109 76,192 70,461

IB 49,388 50,472 54,208

SPDB 42,532 47,159 52,832

CMBC 57,406 57,228 56,168

CITIC 50,735 56,489 58,023

CEB 39,015 40,319 42,250

PAB 35,069 37,937 36,885

HX 27,657 34,020 39,093

CZB 6,495 8,360 11,305


383,406 408,176 421,225

BOB 10,401 13,776 14,534

BSH 9,988 10,254 10,149

BJS 13,733 14,046 14,409

BONJ 6,108 6,987 8,348

BJZ 5,181 4,086 4,462

CQRCB 15,740 16,182 16,245

BONB 7,460 9,543 11,600

HSB 6,697 7,647 8,957

SJB 4,036 4,567 4,824

HRB 7,408 7,131 6,969

BTJ 5,416 6,195 6,526

BZZ 2,941 3,321 3,773

BHZ 5,350 5,763 6,176

BGY 3,405 4,066 5,263

BCQ 3,581 3,780 4,023

BQD 2,655 2,970 3,276

CSRCB 1,248 2,370 3,530

WXRCB 1,266 1,279 1,317

JYRCB 1,094 1,313 1,419

ZJGRCB 1,294 1,393 1,827

WJRCB 1,152 1,158 1,380


116,154 127,827 139,007

All listed banks 2,229,532 2,276,124 2,282,617

Source: Annual reports published by the listed banks* Only the banks that separately disclosed the figures have been included.

The extensive application of smart self-service equipment and e-banking channels has prompted the transformation of outlets, inevitably accompanied by the transformation of banks’ employees. Transaction settlement staff released from traditional counter service duties were partly assigned to undertake new duties such as marketing and internet finance after adequate training. Such rearrangements have improved the profitability of the banks and the operational efficiency of their human resources.

Going forward, the listed banks are likely to continuously optimize their outlets and streamline the structure of staff as technology advances and operational reforms are further deepened. The survey results of EY’s Global Banking Outlook 2017 show that 60% of the Chinese survey participants viewed the optimization of customer channels and physical outlets as a key initiative for 2017, and 40% of the Chinese participants expected the total number of employees of their banks to decrease in the next 12 months, with downsizing primarily focused on administrative duties, management and bank tellers.

In the long run, banks’ active efforts to optimize physical outlet distribution and reposition some employees are expected to improve their service capability and reduce costs. Reduced staffing is not a bad thing. Instead, it will prompt the listed banks to further improve their remuneration management linked with performance assessment to ensure that the compensation is in favor of outlet employees, core employees and high-caliber financial talents. A reasonably designed remuneration mechanism also impels commercial banks to move toward a flat management model emphasizing the operation-centered strategy and the supportive role of business management, which in turn adds to corporate attractiveness to employees and increases the cohesion of the organization. In addition, banks should intensify employee training through tailored rotational training programs.


9Outlook: Enhanced risk prevention and control, and continued innovation and transformation


The CBRC’s 2017 first-quarter meeting on the economy and finance pointed out that the overall financial system was operating steadily and that the banking industry has continued smooth operation. Various types of loans kept growing with positive changes in credit structure, while the growth in interbank and wealth management businesses slowed. The operation of commercial banks has remained stable overall. At the same time, the meeting also emphasized that the Chinese banking industry should take a more proactive stance on preventing financial risks, tackling dubious financial dealings, amending regulatory weaknesses and further improving the level of service.

Continue to closely follow national strategies, improve the level of service, and seize new opportunities for business growth

In 2017, key national strategies, such as the B&R initiative, the Beijing-Tianjin-Hebei integration initiative and the Yangtze Economic Belt initiative, are entering the full implementation stage, with growing demand for infrastructure construction and cross-border investments. Supply-side structural reform is continuing to deepen with the principles of “cutting overcapacity and excess inventory, deleveraging, reducing costs, and strengthening weak points,” providing new drivers of economic growth, stimulating the intrinsic powers of the economy, and unleashing market vitality and creativity. The reform of the SOEs, corporate acquisitions and restructuring, inventory reduction, and market-based debt-to-equity swap will all bring more business opportunities for the banking industry. At the same time, the steady development of emerging industries and business models, the upgrade of household consumption, the accelerated consumption in retirement, health care, tourism and education, as well as the increased investment by the government in social enterprises and people’s well-being, will bring new opportunities to the banking industry in terms of developing new customers and expanding to new business areas. The continued deepening of interest rate and exchange rate liberalization reform, further progress in RMB internationalization, and the financial reform and opening-up of free-trade zones, will also provide ample space for business innovation by the banking industry. In addition, the listed banks will also continue to develop inclusive finance, provide financial services to small and micro businesses and “agriculture, rural areas and farmers,” and increase the efficiency of targeted poverty alleviation by financial means, thereby further improving the coverage, availability and satisfaction of financial services.

According to the National Bureau of Statistics, the Chinese economy got off to a good start with gross domestic product (GDP) in the first quarter of 2017 reaching RMB18,068.3 billion, representing a 6.9% y-o-y increase. 2017 is an important year for the implementation of the 13th Five-Year Plan and a year for the continued deepening of the supply-side structural reform. China’s banking industry is still undergoing critical transformation and experiencing profound changes in the operating environment where both opportunities and challenges coexist.

On 1 April 2017, the CPC Central Committee and the Chinese State Council announced the decision to set up a new special economic zone covering three counties of Hebei Province (Xiongxian, Rongcheng and Anxin) — the Xiongan New Area. The Xiongan New Area is another new area of national significance following the Shenzhen special economic zone and Pudong New District in Shanghai, and is China’s “thousand-year project” of national importance.

The listed banks have responded quickly to deploy specific measures to support the construction of the Xiongan New Area. On the one hand, they are strengthening organizational leadership to plan for the establishment of new entities in Xiongan New Area. On the other hand, they are bringing innovation and improvements to financial services to fully meet the needs of the New Area. ICBC, BOC, CCB, ABC and BOB have all set up a leadership groups at the Head Office level, dedicated to serving the construction of Xiongan New Area, and are preparing to set up new branches in Xiongan New Area. PSBC made it clear that the entire group will play to its advantage in funding to better serve the construction of the New Area. PAB also stated that it has attached great importance to the strategic development opportunities emerging with Xiongan, and is looking to set up a branch in Xiongan as soon as possible.

Enhance enterprise risk management and improve the ability to prevent and mitigate risks

The CBRC’s 1Q17 meeting on the economy and finance clarified that, in terms of prevention and control of financial risks, the Chinese banking industry should enhance credit risk management and control, improve liquidity risk management, standardize cross-market and cross-sector financial services, standardize wealth management business and agency business, strengthen prevention and control of internet finance and IT risks, as well as risks of external shocks. Meanwhile, the industry regulation will also be tightened with more stringent requirements on the policies and procedures, self-inspection and information disclosure of the Chinese banking industry.

In order to implement the overall requirement raised during the Central Economic Working Conference, namely, “to give top priority to the prevention and control of financial risks,” the CBRC successively issued new regulatory measures in 2017 designed to address the “Three



violations,” “Three Arbitrages” and “Four Improprieties,” and raised requirements to prevent “Ten Major Risks.” The issuance of one regulatory measure after another has raised more stringent requirements on the credit business, bond investment, wealth management business and interbank business of banks. From the first quarter of 2017, off-balance sheet wealth management products will be included in the PBOC’s scope of general credit loans so as to rationally guide the financial institutions to reinforce the risk control of off-balance sheet activities, thereby becoming a key indicator in the Macro Prudential Assessment (MPA) and dubbed the “strictest MPA assessment in history.”

Against the backdrop of the issuance of successive new regulatory measures which signals more stringent regulatory requirements, listed banks have all prioritized reinforcement of risk management in their 2017 work plan, striving to strictly control various types of risks, maintain better asset quality, and ensure absence of systemic risk. This is not only a direct result of strengthened regulations, but also a natural requirement of the banks’ own development. As the Chinese economy undergoes slower growth and structural adjustments, credit risk from overcapacity industries as well as small and micro businesses, default risk of large enterprises, the market differentiation risk of the real estate industry, currency depreciation pressure, liquidity risk and risk surrounding local government debt cannot be ignored. In addition, the re-launch of the real estate market control in key cities points to increased uncertainties in the outlook of the real estate market. Therefore, listed banks should pay close attention to the financial risks that come with the control measures.

Keep up innovation efforts and explore a suitable path of transformation and development

In 2017, under the dual pressures from operations and regulators, the listed banks will accelerate transformation and development, keep up innovation efforts and explore a suitable path of transformation and development.

After years of experimentation, a number of listed banks have started to witness the effects of integrated operation strategy and internationalized operation strategy, particularly for large commercial banks, whose network of overseas entities is substantially complete. Serving the B&R and RMB internationalization, large commercial banks are also facing increasingly complex international situations while seizing new opportunities, and therefore should pay increased attention to risk prevention and control by overseas entities. As indicated in the 2016 annual reports, large commercial banks are taking the lead in streamlining organization and adjusting personnel structure. In 2017, large commercial banks will further optimize outlets deployment, and adjust and improve personnel structure, so as to enhance operational efficiency

and level of service. Meanwhile, on the basis of consolidating traditional operational advantages, large commercial banks will continue to explore new drivers of business growth, new business models and new customers.

National joint-stock commercial banks face more pressure in capital adequacy. While replenishing capital through various channels and consolidating their capital base, they will accelerate the exploration and practice in strategic transformation featuring “light operation.” A number of national joint-stock commercial banks have already incorporated the “capital-light,” “asset-light,” “operation-light” or “operation-light bank” model into their strategic plans, in order to “obtain higher-value returns using less capital, lower risk weights, more integrated operations, and asset and business systems with controllable risk.”

City and rural commercial banks are more familiar with local characteristics when providing support to supply-side structural reform. While safeguarding against risks, city and rural commercial banks can further increase exposure to small and micro business loans and agricultural loans. Based on historical data, it is not difficult to note that the investment by city and rural commercial banks in FinTech is on par with large commercial banks and national joint-stock commercial banks. While better serving the local economy, city and rural commercial banks will harness the advantage of their relatively small size and flexible operation model and leverage FinTech to innovate in products and business models, so as to obtain more new customers and new businesses from wider geographical areas, and identify new drivers of business growth.


Leadership Team

Jack Chan Greater China Financial Services Managing Partner +86 10 5815 4057 [email protected]

Geoffrey Choi Asia-Pacific Financial Services Assurance Leader +86 10 5815 3222 [email protected]

AJ Lim Greater China Financial Services Assurance Leader +86 21 2228 2929 [email protected]

Kelvin Leung Greater China Financial Services Banking and Capital Markets Leader +86 10 5815 3305 [email protected]

Other Contacts

Beijing Steven Xu Financial Services +86 10 5815 2621 [email protected]

Frank Jiang Financial Services +86 10 5815 2272 [email protected]

Shanghai Ron Yan Financial Services +86 21 2228 2332 [email protected]

Shenzhen Benny Cheung Financial Services +86 755 2502 8287 [email protected]

Contact usGuangzhou Teresa Zhao Financial Services +86 20 2881 2773 [email protected]

Hong Kong Teresa Tso Financial Services +852 2846 9033 [email protected]

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APAC no. 03004719 ED None

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