Investment would expand from 27% to 30% of total assets in 2016.
According to Natixis, Chinese banks are becoming more of an investment bank than a commercial bank as shown by the sharp increase in their investment book compared to the loan book.
This is not to say that credit growth is negative, but assets classified as investment is growing at a much faster pace. Banks have many reasons to do so, but the ultimate implication is a trade-off between profitability and higher and wider spread credit risk.
"The next question is whether the trend will continue. Looking into listed banks, we estimated the situation this year based on our broader base analysis of over 80 banks in 2015, and give forward implication beyond 2016. We forecast that investment would expand from 27% to 30% of total assets in 2016. The proportion of the loan book would continue to shrink as banks continue to offload loans and clean their balance sheets through debt to equity swaps and other forms ofsecuritization. Banks, however, will continue to take corporate risk (or at least the income stream of it) by growing their investment receivables," says Natixis.
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