3 things that will weigh on China banks' profits over the next 5 years

Profit growth will slip to single-digit levels.

According to BBVA, despite the strong performance of China's banking sector in 2012, profits and asset quality are likely to decline.

Here's more from BBVA:

Looking ahead, a number of factors will weigh on bank profits in the coming years: (i) narrowing net interest margins (NIMs) as interest rate liberalization proceeds and competition in the banking industry increases;

(ii) a slowdown in growth compared to the double-digit levels of recent years (to around 8% in 2013-14); (iii) financial loses appearing on bank balance sheets from shadow bank lending (including to local government financing vehicles). 

In addition regulations are likely to tighten as Basel III is implemented and as the authorities seek to contain risks from rapid credit growth, all of which may raise costs in the banking sector.

In view of these factors, we maintain our projection of bank profit growth slipping to single-digit levels over the next five years.