Yongli Wang: Facing a Major Test for Banking Profit Growth

2015-10-14 IMI

Yongli Wang: Senior Vice President, LeTV; Former Vice President, Bank of China Content abstract Many factors will influence and impact on banking profits growth, starting in 2015, the total profits are likely to reverse the long-term growth trajectory, a negative situation, and the banking industry in the future return on capital is likely to gradually reduce, this will have a huge impact on Banks' management, worthy of attention. Five years in our country, since the accession to the WTO transition period starting the end of 2006, with China's overall economic growth speed and the financial sector to further speed up the development of reform and opening up, the banking industry, including commercial Banks and policy Banks overall profit also in the rapidly expanding scale and growth speed is greatly increased.After the outbreak of the global financial crisis, China's four big state-owned commercial Banks and even into the world's most profitable Banks, position in the world's big Banks are also rising, banking profit growth rate peaked in 2011. But since 2012, the economic slowdown, non-performing loans rebound, interest rate marketization process is accelerated, and the influence of financial factors such as the rapid development of Internet, the Banks profit growth present accelerating the speed of the decline, by 2014, the big Banks profit growth basically returned to single digits, and from the view of the quarter, also presents the obvious decline.In 2015, the decline in profit growth in banking is more obvious, no profit growth of more than 2% in the first half of the big Banks, some of which have been reduced to less than 1%.It is declining in provision for coverage since late 2013, the loan provisioning rate is generally lower, but the condition of general increase loans of (if keep the same provision for coverage and loan provisioning rate, large Banks overall after-tax profits may have negative). Also because of the banking sector profit growth rate significantly decline, although in recent years its return on capital is far higher than that of general corporate entities (large commercial Banks remain at an average of 20% in 2014 from top to bottom), but its stock price is very low, and in a very long period of time to the market value of listed Banks and even is generally lower than the book value of net assets (in the first half of 2015 when the stock market rally, once the situation improved markedly, but as the stock market fell, the situation began to reproduce). Unfortunately, the banking sector profit growth will face greater impact and test.This includes at least: In global overcapacity, under the condition of insufficient effective demand, as a foundation for brought together the world's largest production capacity, the "world factory", China is facing the challenge of more.At present, the downward pressure in the real economy remains, banking non-performing assets rebound trend is difficult to change obviously, the cost of banking risk internal control are still increasing; Second, the local government began to issue bonds to replace the original debt and add new debt, in March and June this year is divided into two group of a total of 1 trillion yuan each, the scale of five years is likely to exceed 10 trillion yuan, a large part of which will replace a bank loan.By bond interest rates significantly lower than the loan interest rate, on a large scale of local government to issue bonds and alternative to bank loans, will greatly reduce the interest income of banking (although this may reduce the cost of bank reserves). The development of the three is to stimulate the real economy, the government and the central bank is increasingly adopt policies and measures to depress the benchmark deposit and lending interest rates, including asymmetric cut, compress the bank deposit and lending spreads.Especially in stocks, bonds, funds, and under the condition of financial speed up the development of the Internet, disintermediation trend continuously strengthen social funds, bank deposit loss increase, forcing it to raise interest rates to stabilize the sources of funds, is bound to make the actual level of spreads further narrowed; Four is the entity enterprise profit margin is very low, the cost of debt is very high, our country banking renminbi spreads keep this high level for a long time, return on capital is far higher than the entity enterprise, government and social force is incentives, forcing Banks to support the development of the real economy, achieve the goal of stable economic growth.Recent bank cut interest rates, reduced the charge pressure is still large, this is bound to promote banking profits fall further; Five is the rise of the Internet financial, not only a large number of shunt bank business, and force Banks to increase investment in information technology, as well as the operation and maintenance costs; Six is after the stock market ups and downs this year, in the near future to maintain financial stability, including clearing to crack down on irregularities in financial transactions, foreign exchange trading and liquidity, financial regulation will increase significantly.At the same time, will further deepen financial system reform, the development of capital market and direct financing will speed up, the barriers to entry of banking will reduce further, deposit insurance system has already begun, national protection for the banking sector will gradually weaken, it will have an effect to the bank's operation and development. In short, many factors will influence and impact on banking profits growth, starting in 2015, the total profits are likely to reverse the long-term growth trajectory, a negative situation, and return on capital is likely to gradually reduce, in the future banking into moderately higher than social average return on capital of the "new normal", this will have a huge impact on Banks' management, worthy of attention.In this transformation process, how to keep the business development, risk control and the coordination and balance and a reasonable level of profit after tax, will become the banking management and its shareholders face a severe test.

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Yongli Wang: Facing a Major Test for Banking Profit Growth

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