Chinas world-leading banks industry slows down

Despite economic growth slowing in recent years, Chinas banks industry has continued to record dynamic, double-digit year-on-year growth, and although deceleration is expected between 2016 and 2020, a strong compound annual growth rate of 9.9% is projected.

The Chinese banks industry reached a total asset value of almost USD 32 trillion in 2015, accounting for 58% of all Asia-Pacifics assets and making it the worlds single largest banks industry by a considerable margin, according to research company MarketLine. The report shows that bank credit in China is a much smaller segment than is seen for the global industry as a whole, meaning that it is less exposed to credit issues than countries like the US and the UK, where bank credit accounts for a far larger portion of total industry value.

Bank of China and Industrial and Commercial Bank of China (ICBC) saw noticeable increases in their non-performing loan (NPL) rates during 2015, necessitating greater allowances for credit losses, while Agricultural Bank saw something of a surge. If this becomes a longer-term trend, these banks will have to continue making larger allowances, thus reducing net profits.

Chinas Big Four are, in terms of assets, four of the five largest banks globally, so these rates are highly unlikely to cause the collapse of a bank similar to those seen in the West in 2008. The Chinese banking industry remains heavily government-influenced, and a report by the United States Congressional Research Service claims China’s banks must negotiate both commercial considerations and strict government directives.

The country’s four largest banks (ICBC, China Construction Bank, Agricultural Bank of China, and Bank of China) are partly state-owned, and are therefore not necessarily able to operate with 100% autonomy. MarketLine believes this will shield the banks from serious trouble, but will also mean they continue to lend to businesses that are perhaps not as credit-worthy as they should be.