China | China Banking Monitor 2024

Summary

Bank performance in 2023 was affected by a lackluster macro environment, primarily due to the downturn in the property market. Bank's housing sector exposure declining, but risks from local government financial vehicles remain concerning.

Key points

• Key points:
• Bank assets growth saw steady expansion in response to regulators’ renewed call for more credit support to corporate and house borrowers amid the deep housing market correction.
• Banks’ profitability deteriorated due to falling lending rates and narrowing interest margins. Return on assets (ROA) and return on equity (ROE) registered the lowest records in more than a decade.
• Both the non-performing loan (NPL) ratio and special-mention loan ratios declined, benefiting from a sustained NPL disposal. However, asset risks are rising.
• The recently implemented capital rule will potentially free up capital for banks with large mortgage exposure. However, lenders are subject to pressures of capital shortfall due to the prospective implementation of the Total Loss-Absorbing Capacity (TLAC) rule in 2025.
• Banks interconnectedness with the shadow banking system picked up slightly. The decline of interest rate in the interbank market has encouraged smaller banks to rely more on interbank funding.

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