Recently, PwC released the review and outlook of China's banking industry in the first half of 2018. Liang Guowei, managing partner of PricewaterhouseCoopers China Financial Services, pointed out that "the scale of interest bearing assets of large commercial banks has expanded, in which the loan yield of interest bearing assets has increased, driving the growth of net interest income and profit growth. At the same time, the main drivers of profit growth of joint-stock banks are different, and the degree of differentiation is becoming increasingly significant."

According to the report, in the first half of this year, the total assets of China's listed banks as a whole still kept growing, with year-on-year growth slowing, and the overall net profit still kept growing, but the profit indicators were mixed. Compared with the end of 2017, the non-performing loan ratio of listed banks continued to decline by the end of June this year, but the overdue loan ratio rebounded, and the uncertainty of credit asset quality still exists.

Capital replenishment pressure is still high

The report shows that in the first half of this year, the core tier one capital adequacy ratio of the five major state-owned banks remained stable, the capital adequacy of joint-stock commercial banks fell back, and there was still great pressure to replenish capital.

Whether the fixed increase plan of Bank of Nanjing was approved in July, and recently the fixed increase premium of Huaxia Bank has aroused widespread concern in the market. Zhu Yu, the partner in charge of financial industry audit of PricewaterhouseCoopers in North China, told the Securities Daily that although individual shares in the banking industry were generally "broken the net", from the perspective of profitability, the performance of banks was very good, and the high premium also showed the recognition of the market.

In fact, according to our reporter's statistics, in the first half of this year, the number of banks that supplemented their capital by regular increase decreased. In addition to the 100 billion yuan order of Agricultural Bank of China in March, only a few banks, such as Shangrao Bank, chose to supplement their blood by regular increase. Among the external capital supplement methods, convertible bonds and preferred shares are more favored by banks. Since this year, Changshu Bank, Wuxi Bank, Jiangyin Bank, Zhangjiagang Bank, Bank of Jiangsu, etc. have all chosen convertible bonds to supplement capital.

In addition, in the first half of this year, banks generally increased their efforts to dispose of non-performing assets. During the reporting period, the write off reserves of ICBC, CCB, Agricultural Bank of China, Bank of China and Bank of Communications were 52.223 billion yuan, 24.533 billion yuan, 39.567 billion yuan, 46.124 billion yuan and 27.815 billion yuan, respectively, accounting for 22.71%, 12.34%, 21.28%, 28.24% and 38.90% of the amount of non-performing loans.

The write off reserve of joint-stock commercial banks generally accounts for more than 20% of the amount of non-performing loans, and the highest figure of Ping An Bank is 66.43%. The write off reserve of SPDB, CITIC Bank and Everbright Bank also accounts for 47.60%, 50.28% and 44.36% of the amount of non-performing loans, respectively.

Zhu Yu pointed out that in the first half of 2018, the situation of non-performing loans in China's banking industry generally improved slightly, and the ability to resist risks also increased, but some high-risk areas still attracted regulatory attention, such as real estate loans, local government debt and Internet finance. Listed banks need to be vigilant, prevent risks as soon as possible, increase the strength of provision and steadily advance risk prevention.

Financial management business under pressure

PricewaterhouseCoopers believes that the new asset management regulations have a certain impact on the income of bank financing, and will also allow its risks to be better managed. How to achieve a balance between the two has become a new test. The pressure mainly comes from four aspects, namely, the reduction of financial returns due to the restriction of non-standard investment, the increase of operating costs due to net worth management, the establishment of financial subsidiaries or the rise of bank costs, and the potential impact of new asset management regulations on capital.

According to the report, at present, bank financing has been invested through multiple channels, mainly in the form of banks purchasing financial products from each other, issuing trust loans through trust, bank outsourcing investment, directional channels, etc. Bank wealth management is meeting the requirements of the new asset management regulations by "subtracting channels", so as to achieve the regulatory requirement of "avoiding arbitrage through channel investment". Based on this, the selection range of non-standard investment of banks has been narrowed. At the same time, due to the relatively long term of non-standard assets, the requirement of term matching further restricts the scope of non-standard investment on the asset side, thus further reducing the return on the bank's asset side.

In accordance with the new asset management regulations, the bank promoted the transformation of wealth management products from expected income products to net worth products, which may lead to the loss of risk averse investors, thus limiting the raising of funds and increasing the cost of funds. On the other hand, for net worth products, it is clear that the product valuation and net value generation are applicable to the provisions of the Accounting Standards for Business Enterprises, and the custodian institution is required to conduct accounting, regularly disclose reports, and be audited and confirmed by the external auditor.

In accordance with the requirements of the new asset management regulations for commercial banks to set up subsidiaries with independent legal status to carry out wealth management business, some commercial banks have started to prepare for the establishment of asset management subsidiaries. The liquidity support received by subsidiaries from the parent bank may decrease, which will affect the expansion of the asset side; It is inevitable to increase the requirements for the investment research team of the subsidiary itself and the allocation of relevant professionals, which may increase the cost of human resources, sales and management of wealth management business, making cost control particularly important.

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