Analysis of China listed banks' results for the first quarter of 2016
China economy is still on a downward trend in 1Q 2016, despite the fact that there are a few positive signs. The listed banks' earnings are more and more affected by the macro environment.
This newsletter predicted that listed banks' net profits will reach the peak in the short term in the previous issue, which has been closer to the reality in 1Q 2016.
One factor that erodes listed banks' net profits are the effect of five times' reductions on interest rates by the People's Bank of China in 2015, causing banks' net interest income under pressure. This effect is most significant to Large Commercial Banks, with their net interest income recorded negative growth in 1Q 2016 for the first time.
Listed banks' credit risk continues to rise in 1Q 2016, with both non-performing loan balance and ratios on the rise. As a result, their provisions were under greater pressure, with the provision coverage ratios of some Large Commercial Banks fell below the regulatory minimum.
This newsletter also briefly discussed the implications of the VAT reform for banking sector. As the largest sector among financial services industry, banks' tax burden will be increased in the short term. That said, most banks are actively taking many measures to face these changes.
Previous issues of Banking Newsletter for the China banking community