Profit growth slows while assets remain steady – PwC’s China Banking Newsletter 2023 Mid-Year Review and Outlook

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Hong Kong, 22 September 2023 – PwC China has today released its China Banking Newsletter 2023 Half Year Review and Outlook. It shows that Mainland China's economy has continued to recover in the face of a challenging environment. The banking sector is facing challenges while increasing its efforts to serve the real economy.

“In the first half of the year, the People's Bank of China (PBOC) used a range of monetary policy tools to facilitate financial institutions to extend credit support for the economy. The banking sector has made efforts to mitigate local government debt risks, contributed to ensure steady development of real estate markets, and continued to serve private businesses,” says James Chang, China Financial Services Leader, PwC China.

In the first half of 2023, the overall operating revenue of the 58 banks surveyed increased by 0.5% year-on-year. Growth rate has significantly decreased compared to the same period last year, and profits before loan loss provision decreased by 1.78%. Net interest margin and spread continued to narrow. 

“As the performance of banks tends to lag behind the overall macro-economic cycle, we expect these pressures and challenges on the banking sector will continue in the second half of the year. Banks will continue to support the real economy and technological innovation. At the same time, they also need to manage costs, improve asset quality and strengthen risk management controls,” says James Tam, Banking and Capital Markets Leader, PwC Hong Kong.

In 1H 2023, the banks’ overall assets increased by 8.19% compared to the end of 2022 – faster than overall GDP growth. Credit growth was further stabilised.

The loan balance stood at 158.83 trillion yuan – an increase of 11.58 trillion yuan or 7.86% compared to the end of 2022, and the growth rate has rebounded significantly by 4.47 percentage points, 0.15 percentage points higher than the same period last year. Corporate loans grew 13.52% year-on-year, due to increased support for infrastructure, green, and technology development. The growth in consumer lending and mortgages was sluggish.

At the end of June 2023, the ‘special mention’, ‘overdue’ and non-performing loan (NPL) rates of the 58 banks surveyed decreased by 0.07, 0.04, and 0.02 percentage points respectively – down from a historic high at the beginning of the year.

The overall loan-to-provision ratio was unchanged at 3.15%. Provision coverage rate was 241.64% - up 4.14 percentage points compared to the end of the previous year. Non-performing assets written off and transferred out stood at 413.3 billion yuan – a decrease of 1.55% compared to the first half of 2022.

Total liabilities increased by 8.65% compared to the end of 2022. Customer deposits remain the main source of funds, increasing as a proportion at the large commercial banks and the city & rural banks, while the proportion of interbank liabilities has decreased.

Many banks responded to national policies of support for the real economy. Expanded lending to smooth the path of the economy slowed profit growth. As of the end of June 2023, the core Tier-1 capital adequacy ratio and capital adequacy ratio had dipped.

“Looking ahead, the world economy continues to slow, with greater disparities between regions. The cumulative effect of interest rate hikes in some developed economies on the global economy will continue to be felt. The domestic economy is facing new challenges, and endogenous growth is insufficient. Consumption still needs to be boosted, and investor confidence needs to be further strengthened,” says Linda Yip, Financial Services Partner, PwC China.

Notes to Editors

This issue of the Banking Newsletter analyses the 1H 2023 reports of 58 A- and H-share banks, representing 82.96% of the total assets and 90.42% of the net profits of China’s banking sector. These banks are divided into Large (6), Joint-Stock (10) and City & Rural banks (42).

The 58 banks covered by the Newsletter are: