China’s banking asset management sector to double by 2021, says McKinsey

Chinese banks are driven to grow the fee-based income segment, as they strive to reduce reliance on traditional credit business

PUBLISHED : Thursday, 10 August, 2017, 8:07pm
UPDATED : Friday, 11 August, 2017, 8:10am

China's banking asset management sector will almost double in size by 2021 on rising demand for investment products and banks’ drive to expand fee-based income, despite a recent decline caused by tighter regulatory scrutiny, McKinsey said on Thursday.

The sector is expected to grow by a compound annual growth rate of 15 per cent to reach almost 60 trillion yuan (US$9 trillion) by 2021, or nearly double the size in 2016, according to a report released by the consultancy on Thursday.

Banks account for the biggest portion of China’s total asset management market, or one quarter of the 114 trillion yuan of assets in 2016. The total asset management market, which covers assets managed by banks, fund houses, insurers and trust firms, was expected to top 249 trillion yuan by 2021, up 118 per cent from that in 2016, the report said.

“We see a continued trend for the asset management sector to grow,” said John Qu, a senior partner at McKinsey in Shanghai, attributing the growth to factors including the nation’s wealth accumulation and underlying financial need.

In addition, banks were also driven to grow the fee-based income business, as they strive to reduce reliance on traditional credit business, said Nicole Zhou, a McKinsey partner in Shanghai.

We see a continued trend for the asset management sector to grow
John Qu, McKinsey

Chinese banks are under mounting pressure to seek new growth engines amid slower economic growth and the nation’s gradual transition to a more liberal, market-based interest rate mechanism that draw fiercer competition and lower interest margin.

McKinsey said banks’ net interest margin, an index reflecting their interest earning ability, shrank to 2.03 per cent in the first quarter of this year, from 2.57 per cent in the first quarter of 2013.

Though expanding, the asset management market was however, growing at a much slower pace compared with the past five years, amid tighter regulatory scrutiny to weed out irregularities, McKinsey said.

The People’s Bank of China , or the central bank, is leading the nation’s banking, securities and insurance regulators in drafting new rules governing the burgeoning asset management sector.

PBOC official: China’s asset management sector to shrink

Tao Ling, deputy head of the financial stability bureau at the central bank, said in Shanghai in July that irregularities of the assets management sector could lead to cross-industry risks amid increasingly intertwined financial transactions.

As of the end of May, the banking asset management market shrank to 28.4 trillion yuan, down 1.6 trillion yuan than a month ago, the largest monthly drop in a decade.