Mainland banks 'must find new profit paths'
The mainland's banking industry must evolve from overreliance on loans and interest income and expand into intermediary services, wealth management and online banking, the head of China Merchants Bank said.
'Chinese banks can't stay for the next 30 years with the ways that worked in the past 30. We must revise our path substantially. If we stay with the old path, even if it's not a dead end, it will get narrower and narrower,' bank president Ma Weihua said yesterday.
Separately, the bank said it intended to raise up to 35 billion yuan (HK$42.4 billion) in a Hong Kong and Shanghai rights issue to replenish its capital. It would issue up to 2.2 shares for every 10 existing shares.
Ma said China Merchants would first like to shrink its loans to big enterprises - a business that was low-risk but tied up large amounts of capital and offered relatively poor returns. 'So far, we still have a lot of business with large-scale enterprises. But to break up with a partner one must do it gradually so both sides won't be hurt,' he said.
The annual compound growth rate of bank loans on the mainland has been the highest in the world. For the past 30 years its was as high as 22 per cent, he said, with the rate in the past five years at 19.7 per cent.
'But this also means a rapid increase in both risky assets and the consumption of capital,' he said. 'This kind of business model is not sustainable in the future.'
Ma said such loan growth could not go on because the economy as a whole was facing change. 'The bank industry is closely linked to the country's economy and now China is trying to focus on the efficiency and quality of its economy instead of its speed and scale,' he said. 'In the past banks relied on remarkable interest income for profits, which might go down dramatically during a process of deregulation.'
He said margins on the mainland were at more than 3 per cent, while in Taiwan they were only 1.2 per cent. 'The deregulation of interest rates is an unavoidable trend and, by then, the Chinese banking industry will face a big challenge,' Ma said.