The era of high growth among mainland banks is looking increasingly hard to sustain, and the amount of local government loans becoming due in the next two years could exacerbate the situation.
Profit growth among the 17 mainland banks listed in Hong Kong or the mainland was 4 percentage points lower than in 2010, partly because of the difficulty of maintaining strong growth when some lenders are already large-scale and partly because of a slowdown in wider economic growth and a rise in bad loans, according to accounting firm Ernst & Young.
Last year six of the 17 listed banks posted an increase in non-performing loan charge-offs. And in the first quarter of this year, 11 listed banks saw a rise in bad loan recognition, said Keith Pogson, managing partner of Asia Pacific financial services at Ernst & Young.
'The days of ever-declining non-performing loan ratios in Chinese banks have ended,' Pogson said.
Mainland banks needed to change their business philosophies in order to maintain vitality, Pogson said, adding that part of the shift would involve becoming less reliant on interest income.
The banks have enjoyed fat profits in past years, partly because of a steady income spread between what they pay for deposits and what they earn from lending. The 17 banks made 886.7 billion yuan (HK$1.08 trillion) in profits last year, up 29 per cent year on year.
Many larger banks have already begun increasing the proportion of fee-based income generated from operations such as credit cards and investment products. Fee income can contribute up to 50 per cent of revenue at some global banks.
