Chinese banks report double-digit profit growth in 2021

But they also face a difficult 2022 due to a triple whammy of challenges.

After a stellar 2021 that propelled them to record double-digit profit growth, China’s largest banks are sinking back to harder times amidst a triple whammy of challenges, PwC reports in its latest China Banking Newsletter Review and Outlook.

“In 2022 the domestic economy faces the triple pressures of shrinking demand, supply shock and weakening expectations,” said James Chang, financial services managing partner, PwC China. “The banking sector will need to be agile in responding to uncertainty and countercyclical movement.”

Net profits for the 44 banks surveyed increased by 13.06% year-on-year to over $286b (C¥1.83t). Notably, China’s six large banks saw profits increase by 11.43%, whilst those of the eight mid-tier ‘joint-stock’ banks grew their profits by 17.53%.
 
The double-digit growth was thanks to a significant year-on-year decline in provisions for impairments, according to Benson Cheng, financial services assurance partner, PwC Hong Kong. 

“A more volatile bond market also contributed to an increase in fee income,” Cheng added.

The total assets of the banks surveyed reached 215 trillion yuan, an 8% slightly slower than the 10% growth of 2020. 

The balance of non-performing loans (NPLs) amongst the 44 banks surveyed also increased marginally by 1.14% to C¥1.7t compared to 2020. However, the NPL ratio declined 14 basis points to 1.36%, whilst the overdue ratio fell 9 basis points to 1.36%. These declines were mainly attributed by PwC to ongoing improvements in risk identification and classification capabilities.

“In the face of multiple uncertainties at home and abroad, financial stability is critical to bolster the macro-economy. Financial stability is inseparable from bank stability. China's banking sector needs to focus on development, consolidate asset quality and accelerate its strategic transformation so as to achieve high-quality development,” says Brian Yiu, Financial Services Partner, PwC Hong Kong.

Helping hand to small businesses

PwC noted that in 2021, China’s banks continued to pursue a policy of helping small businesses. Small business loans reached C¥19.2t yuan by year-end – 27.3% higher than in 2020. 

The six large banks accounted for C¥6.47t yuan of this lending– up 38% from 2020 – whilst joint-stock banks saw such lending grow by 25%.
 
Meanwhile, total liabilities reached C¥195.99t over the period, or 7.62% higher than the previous year. Deposits accounted for 81% of liabilities amongst the large banks.