China’s banks look to strengthen retail operations

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A newly released earnings report for 2017 shows that Chinese banks are getting bigger in size and lending more to individual consumers than to large-scale enterprises.

In the past five years, China's five largest state-owned banks have seen their ratio of retail loans to total loans grow from as low as 20 percent to over 40 percent now.

Compared to state-owned banks, China's joint-stock banks are even more aggressive in increasing their retail banking, because of higher pressure to attract people's savings, said Wang Xiaojun, analyst from R&D Center at Cinda Securities, noting that China Merchants Bank and Ping'An Bank have high rates of retail loans in particular.

Wang said that China Merchants Bank has been raising the weight of retail loans year after year, and its retail loan ratio is the highest among all Chinese banks. And Ping'An Bank lifted its ratio by 13 percentage points last year.

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Bad loans also decreased last year, thanks to China's focus on quality of growth rather than growth rates.

The bad loan ratio will remain steady this year due to China's efforts to cut overcapacity in several capital intensive and high-polluting sectors, according to Zhong Bozhou, Deputy Director of Coordination Department, China Banking Association.

“The steel and cement sectors have almost cleared all overcapacity and the rest are high-end, high-quality demand. These consumers have solid credit ratings. The overall non-performing loan ratio is at 1.74 percent, and the trend remained in the fourth quarter,” Zhong explained.

The Chinese government has pledged to open the banking sector wider to the rest of the world. In that case, foreign banks have better earning structures and carry much weight in operation and brands but Chinese banks would have their own edge in the competition.

"Major indicators of the state banks, including the scale, and net assets, are all leading their global peers. Chinese banks have made progress in risk aversion over the years, and are more knowledgeable in understanding clients, China’s economy and the industry operation," Wang noted.