Mainland banks expect revenue and margins to drop, survey says

Industry expects less than 20pc growth for next three years and threat from property sector

PUBLISHED : Tuesday, 08 January, 2013, 12:00am
UPDATED : Tuesday, 08 January, 2013, 4:21am

The revenue and margins of the mainland banking industry are expected to fall in the next three years, according to a survey by the China Banking Association and PricewaterhouseCoopers China.

The Chinese Bankers Survey 2012, based on 850 electronic questionnaires and 25 interviews with top banking executives between April and June last year, shows that 70 per cent of bankers believe the growth rate of the industry's revenue will be lower than 20 per cent in the next three years.

"It won't grow as fast as in 2009," said Jimmy Leung, a banking and capital markets leader at PwC China.

Adjustments to the real estate sector are seen by 68 per cent of the bankers as a primary risk they face.

To cool the overheated market, Beijing has introduced property curbs in the past two years, including home purchase restrictions in about 40 cities and a property tax in Shanghai and Chongqing, and is studying a nationwide property tax.

Another major concern is government financing vehicles - 59 per cent of the respondents said they were paying close attention and believe the volume of local government financing platform loans should be reduced.

Meanwhile, interest rate liberalisation on the mainland is seen as a major challenge to their business by more than 60 per cent of the bankers.

"It poses a challenge, as the banks have to increase interest on deposits to lure customers who may otherwise go to their competitors," Leung said.

The People's Bank of China increased the deposit interest rate and widened the band for loan interest rates in June.

Banks had adopted a series of measures in response to the challenges, said Raymond Yung, PwC's financial services leader for the mainland.

"That includes expanding high-margin loans to small and micro enterprises and increasing low-cost customer deposits," Yung said.

The survey found that 77.4 per cent of the respondents said loans to small and medium-sized enterprises were the future focus of corporate lending.

"The Chinese banking industry is vigorously developing the SME business despite concerns about the potential higher rate of non-performing loans in that sector," Yung said.