Deposits seen as key factor as Chinese banks’ results diverge
Big four and China Merchants Bank did well in the first quarter, while other mid-sized banks saw margins shrink
The performance of mainland Chinese banks diverged in the first quarter of this year, with some able to increase their net interest margins and boost interest income, while others struggled. The differentiating factor, analysts said, was the amount of deposits the banks had available to fund their activities.
The rates at which Chinese banks lend to each other have increased significantly this year. This has hurt banks that rely heavily on borrowing to fund their lending and investments, while benefiting those who are net lenders – those with plenty of deposits available.
“Different from previous results, the two most important indicators for banks to perform well in the first quarter of 2017 were deposit proportion and NPL [non-performing loan] formation,” said Chen Shujin, a banking analyst at Huatai Financial Holdings.
Last year all major Chinese banks saw their net interest margins shrink due to declines in the base interest rate and because of adjustments in the way value added tax (VAT) was calculated. This meant they had to rely on increases in fees and commissions to achieve the small profit growth they achieved.
In the first quarter however, while net interest margins of the sector as a whole continued to decline, some banks were able to buck the trend.