Page 328 - 2018 White Paper on the Business Environment in China
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8 White Paper on the Business Environment in China
Partner and Head of Financial Services Assurance at In terms of the assets structure, there are eight banks
KPMG China. The total assets of commercial banks at the whose investment volume has surpassed that of their
end of 2016 was 181.7 trillion yuan, an increase of 25.9 credit business. For example, China Zheshang Bank
trillion yuan, or 16.6 percent, compared to the end of registered 1.35 trillion yuan in total assets in 2016, up
2015. Total liabilities amounted to 168.6 trillion yuan, an 31 percent. Of those assets, loans accounted for 32.75
increase of 24.3 trillion yuan, or 16.9 percent, compared percent, while investments, such as bonds or financial
to the previous year (CFO). products issued by other banks represented 45 percent.
In addition, more than 60 percent of the Hong Kong-
The report also discusses key trends affecting the listed Bank of Jinzhou’s assets come from investment.
banking sector in China, including new standards Looking closer, however, most of the bank’s investments
for financial instruments, the fast-changing anti- are categorized as credit, which violates the rules of
money laundering (AML) regulatory landscape, the the CBRC, the Caixin report said. If the banks strictly
securitization of non-performing assets (NPAs), the followed the CBRC’s regulations, they would be trapped
development of foreign banks in China, and the future in a capital fund “black hole.” Under CBRC rules, China
of bank branches in the digital age. Twelve banks, Zheshang Bank is supposed to set aside 1.8 billion yuan
including China Development Bank, China CITIC to prepare for risks associated with its investments, and
Bank, China Everbright Bank, Hua Xia Bank and China Bank of Jinzhou should allocate 2 billion yuan. However,
Minsheng Bank were included in the second pilot list. neither has done so. To make matters worse, most of
“NPA securitization helps banks diversify the approaches the banks took a hit during the bond market crisis at
and channels of NPA disposal. More importantly, it allows the end of 2016, experts said. Yi Huiman, Chairman of
more buyers to participate – in particular the qualified the Board of Directors and Executive Director at ICBC,
investors on the interbank bond market – which can predicted that the quality of commercial banks’ assets
help optimize the China NPA market and increase the would improve in 2017 because the domestic economy
banks’ NPA recovery rates,” says Arthur Wang, Partner has gradually stabilized since the fourth quarter of
and China Head of Banking, KPMG China (CFO). 2016. His opinion was echoed in Wuxi Rural Commercial
Bank’s annual report, which predicted that the
In 2017, foreign banks marked their first decade of nonperforming loans (NPL) ratio would decline slightly
their incorporation in China. According to statistics from in 2017, especially in the Yangtze River Delta region.
the CBRC, from 2006 to 2015, the total assets of foreign However, the report noted that Chinese government’s
banks increased from 92.79 billion yuan to 2,680 billion goal of “cutting capacity” in steel, cement and shipping
yuan, with a compound annual average growth rate will likely put pressure on the quality of banks’ assets.
of over 20 percent. However, the statistics show that Therefore, dealing with the mounting debt of state-
the percentage of total assets of foreign banks to total owned “zombie enterprises” will be a major challenge
assets of the banking sector recorded a decrease from for the banking industry in 2017, especially considering
2.38 percent in 2007 to 1.38 percent in 2015, mainly due that credit lines to SOEs accounted for 10 percent of
to the global financial crisis, the rapid development of banks’ NPLs. In 2016, the State Council, China’s cabinet,
local Chinese banks, and the rising bad debt ratio of launched a debt-to-equity swap program to help
financing for foreign trades. Even with the rapid growth SOEs deleverage and reduce the NPL ratio. But Zhu
in China’s banking sector, the market share of foreign Xiaohuang, President of China CITIC Bank, said that the
banks is expected to stay at around 2 percent in the program’s effectiveness remains difficult to determine
next several years, says Li. “However, compared with (Listed Chinese Banks).
Chinese banks, foreign banks usually possess a broad
overseas network, professional industry practices, The CBRC issued seven policy documents in April 2017
more comprehensive experience in financial services in what state news agency Xinhua is called a “regulatory
and in the adoption of financial technologies. These windstorm”. Some were issued publicly, while others
advantages are helpful for foreign banks to succeed in were sent directly to banks without public disclosure.
some businesses and accurately target their positions in Several of the CBRC’s new policies focus on risks from
China’s banking industry” (CFO). shadow banking, notably the dizzying complexity of
the high-yield investment products that banks sell to
In 2016, 23 of the 27 banks that published annual retail investors and corporations. (Shadow banking
reports revealed double-digit assets-growth rates. is a broad category of banking-liker services from
328
Partner and Head of Financial Services Assurance at In terms of the assets structure, there are eight banks
KPMG China. The total assets of commercial banks at the whose investment volume has surpassed that of their
end of 2016 was 181.7 trillion yuan, an increase of 25.9 credit business. For example, China Zheshang Bank
trillion yuan, or 16.6 percent, compared to the end of registered 1.35 trillion yuan in total assets in 2016, up
2015. Total liabilities amounted to 168.6 trillion yuan, an 31 percent. Of those assets, loans accounted for 32.75
increase of 24.3 trillion yuan, or 16.9 percent, compared percent, while investments, such as bonds or financial
to the previous year (CFO). products issued by other banks represented 45 percent.
In addition, more than 60 percent of the Hong Kong-
The report also discusses key trends affecting the listed Bank of Jinzhou’s assets come from investment.
banking sector in China, including new standards Looking closer, however, most of the bank’s investments
for financial instruments, the fast-changing anti- are categorized as credit, which violates the rules of
money laundering (AML) regulatory landscape, the the CBRC, the Caixin report said. If the banks strictly
securitization of non-performing assets (NPAs), the followed the CBRC’s regulations, they would be trapped
development of foreign banks in China, and the future in a capital fund “black hole.” Under CBRC rules, China
of bank branches in the digital age. Twelve banks, Zheshang Bank is supposed to set aside 1.8 billion yuan
including China Development Bank, China CITIC to prepare for risks associated with its investments, and
Bank, China Everbright Bank, Hua Xia Bank and China Bank of Jinzhou should allocate 2 billion yuan. However,
Minsheng Bank were included in the second pilot list. neither has done so. To make matters worse, most of
“NPA securitization helps banks diversify the approaches the banks took a hit during the bond market crisis at
and channels of NPA disposal. More importantly, it allows the end of 2016, experts said. Yi Huiman, Chairman of
more buyers to participate – in particular the qualified the Board of Directors and Executive Director at ICBC,
investors on the interbank bond market – which can predicted that the quality of commercial banks’ assets
help optimize the China NPA market and increase the would improve in 2017 because the domestic economy
banks’ NPA recovery rates,” says Arthur Wang, Partner has gradually stabilized since the fourth quarter of
and China Head of Banking, KPMG China (CFO). 2016. His opinion was echoed in Wuxi Rural Commercial
Bank’s annual report, which predicted that the
In 2017, foreign banks marked their first decade of nonperforming loans (NPL) ratio would decline slightly
their incorporation in China. According to statistics from in 2017, especially in the Yangtze River Delta region.
the CBRC, from 2006 to 2015, the total assets of foreign However, the report noted that Chinese government’s
banks increased from 92.79 billion yuan to 2,680 billion goal of “cutting capacity” in steel, cement and shipping
yuan, with a compound annual average growth rate will likely put pressure on the quality of banks’ assets.
of over 20 percent. However, the statistics show that Therefore, dealing with the mounting debt of state-
the percentage of total assets of foreign banks to total owned “zombie enterprises” will be a major challenge
assets of the banking sector recorded a decrease from for the banking industry in 2017, especially considering
2.38 percent in 2007 to 1.38 percent in 2015, mainly due that credit lines to SOEs accounted for 10 percent of
to the global financial crisis, the rapid development of banks’ NPLs. In 2016, the State Council, China’s cabinet,
local Chinese banks, and the rising bad debt ratio of launched a debt-to-equity swap program to help
financing for foreign trades. Even with the rapid growth SOEs deleverage and reduce the NPL ratio. But Zhu
in China’s banking sector, the market share of foreign Xiaohuang, President of China CITIC Bank, said that the
banks is expected to stay at around 2 percent in the program’s effectiveness remains difficult to determine
next several years, says Li. “However, compared with (Listed Chinese Banks).
Chinese banks, foreign banks usually possess a broad
overseas network, professional industry practices, The CBRC issued seven policy documents in April 2017
more comprehensive experience in financial services in what state news agency Xinhua is called a “regulatory
and in the adoption of financial technologies. These windstorm”. Some were issued publicly, while others
advantages are helpful for foreign banks to succeed in were sent directly to banks without public disclosure.
some businesses and accurately target their positions in Several of the CBRC’s new policies focus on risks from
China’s banking industry” (CFO). shadow banking, notably the dizzying complexity of
the high-yield investment products that banks sell to
In 2016, 23 of the 27 banks that published annual retail investors and corporations. (Shadow banking
reports revealed double-digit assets-growth rates. is a broad category of banking-liker services from
328
