"Investor's Network" Wang Jianfan
In 2023, in the face of global economic volatility and challenges, the performance reports of China's listed banks revealed the temperature changes in the market.
Recently, the climate has been warm and cold, and judging from the 2023 annual performance of listed banks, it is still "cold in spring".
The global economy has shown a weak recovery in 2023, with intensifying geopolitical conflicts and divergent development between different economies causing significant economic frictions. Although global inflation has eased, high debt levels and successive interest rate hikes in major economies continue to put financial markets under great pressure. Against this backdrop, the U.S. dollar index remained volatile at a high level, driven by high interest rates.
Looking back at China, China's economy has gradually returned to a normal development trajectory in the past year. The government's intensified macroeconomic regulation and control has strongly supported the overall economic recovery. In 2023, China's gross domestic product (GDP) will increase by 5.2% year-on-year, with the total exceeding 126 trillion yuan, the domestic consumer price index (CPI) will rise slightly by 0.2%, and the industrial producer price index (PPI) will decrease by 3.0% year-on-year, and the price and exchange rate levels will be generally stable.
In such a complex and ever-changing environment, commercial banks continue to shoulder the dual responsibilities of promoting economic development and guarding against financial risks. Affected by the overall lack of demand and the decline in interest rate spreads, although the asset scale of the banking industry continued to expand, many banks' revenue fell year-on-year, and net profit growth also began to slow down. In addition, despite the fact that asset quality has not fluctuated dramatically, the non-performing loan (NPL) ratio of public real estate loans remains at a high level, and the NPL generation rate of credit cards and consumer loans has also increased, increasing the pressure on risk control.
In this issue, we focus on 38 representative listed banks in the A-share market, which together account for 61.94% of the total assets and 81.26% of the net profit of China's commercial banks, which can basically reflect the economic health of the industry.
The growth rate of net profit fell
"It seems to be the most ordinary and strange, but it is easy but hard." Wang Liang, president of China Merchants Bank, borrowed Wang Anshi's poem to describe the bank's operation in 2023, which also appropriately reflects the revenue of the banking industry in 2023.
In 2023, the overall net profit of the 38 listed banks mentioned above will increase slightly by 1.59% year-on-year, and the growth rate will continue to decline due to the slowdown in interest income growth.
Among them, the average year-on-year growth of the average revenue of the six major banks was 0.58%, a decrease of 0.47 percentage points from the previous year, and the revenue of Industrial and Commercial Bank of China and China Construction Bank showed negative year-on-year growth. In the face of revenue pressure, many banks have taken measures to reduce the provision for asset impairment losses to smooth the fluctuation of net profit. The provision for impairment losses of Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of Communications and Postal Savings Bank decreased by 17.4%, 11.5%, 6.6%, 5.8% and 26% respectively year-on-year.
In terms of profit, the average year-on-year growth rate of net profit attributable to the parent of the six major banks was 1.91%, down 4.78 percentage points from last year. Among the joint-stock commercial banks, net profit generally showed a downward trend, down 0.74% year-on-year, of which Zheshang Bank's revenue still maintained positive growth, while Ping An Bank and Shanghai Pudong Development Bank both declined by more than 8%.
It is worth mentioning that the performance of urban rural commercial banks in 2023 will be differentiated. Especially in terms of geography, the urban and rural commercial banks in the Yangtze River Delta region maintained profit growth as a whole, while the Northeast and the Pearl River Delta showed a downward trend, and the operating conditions of urban and rural commercial banks in the central and western regions showed a polarized situation.
In terms of specific performance, Bank of Hangzhou, Qilu Bank, Bank of Qingdao, Changshu Rural Commercial Bank and Jiangyin Rural Commercial Bank will have a net profit growth rate of more than 15% in 2023. However, there are also banks such as Shengjing Bank, Guangzhou Rural Commercial Bank and Bank of Zhengzhou, whose net profit fell by more than 20% year-on-year.
In general, the dual pressure of net interest income and net fee and commission income is the main reason for the negative revenue growth or decline of most large and medium-sized banks. Among them, the continuous narrowing of net interest margin had a significant impact on net interest income, while in terms of non-interest income, the income engine of wealth management lacked momentum due to the downturn in the capital market and the decline in the rate of consignment asset management products.
Interest income slowed
Net interest income, as the core source of a bank's revenue, is heavily affected by net interest margin and credit scale. In 2023, the decline in net interest margin has directly dragged down interest income.
Overall, the net interest income of the above 38 listed banks fell by 3.03% to 3.92 trillion yuan.
Among them, the six major banks have been particularly affected. For example, the net interest margins of Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China narrowed by more than 30 basis points year-on-year. Among joint-stock banks, Ping An Bank and Bohai Bank saw net interest margins decline by 37 basis points and 36 basis points, respectively, reflecting the challenges prevailing within the industry.
In response to the downward pressure on net interest margins, major banks have launched different strategies. Relying on the high capital adequacy ratio, large commercial banks continue to optimize their asset structure and maintain rapid growth in credit scale. In contrast, joint-stock commercial banks and urban and rural commercial banks have struggled to grow their credit scale due to capital constraints and other external factors.
In addition, many banks have emphasized the need to "continuously optimize the asset-liability structure" in their annual reports. In response to market volatility, the banking industry is undergoing a series of structural adjustments, including optimizing the customer structure, adjusting the business layout and transforming the asset-light model, which is aimed at improving flexibility and risk management efficiency.
Looking ahead to 2024, Gu Shu, chairman of ABC, stressed the importance of stable net interest margins. He said that if the net interest margin is stabilized, the overall profit in 2024 will be in a more reassuring situation. Similarly, Liu Cheng, president of China CITIC Bank, also mentioned that they will strive to achieve "stable price and appropriate quantity", and ensure stable interest margins by working on both liabilities and assets.
Non-interest income was under pressure
Non-interest income occupies another important position in the operating income of banks, which is mainly composed of net fee and commission income and other non-interest net income, of which the net contribution of fees and commissions is often larger.
In the past two years, in response to the cross-cyclical and counter-cyclical adjustment of national macro policies, the banking industry has implemented a series of fee reduction and interest concession measures. At the same time, due to the reduction of the scale of wealth management products, the instability of the capital market and the strengthening of supervision, the fee income related to wealth management and underwriting consulting has shown a downward trend.
According to the 2023 data, the net fee and commission income of the above 38 listed banks showed a significant downward trend compared with the same period last year. Specifically, large commercial banks fell by 1.41%; joint-stock commercial banks decreased by 13.54%; The decline was even more pronounced in urban and rural commercial banks, reaching 28.94 percent.
Among the six major banks, the net fee and commission income of Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China decreased by 7.7%, 0.29% and 1.5% respectively year-on-year; Among joint-stock banks, China Merchants Bank, Industrial Bank and China CITIC Bank fell by 10.8%, 38.4% and 12.7% respectively year-on-year.
On the other hand, other non-interest net income is mainly affected by factors including fluctuations in the stock market and bond market.
In 2023, the other non-interest net income of the above 38 listed banks as a whole decreased by 8.24% year-on-year. In this area, the other non-interest net income of large commercial banks decreased by 20.48% year-on-year, while the non-interest net income of joint-stock commercial banks rebounded compared with 2022.
Looking forward to 2024, GF Securities Research Report said that under the high base, it is expected that the positive contribution of other non-interest income to performance in 2024 will gradually converge and volatility will increase.
Regulation continues to increase
In November 2023, the State Administration of Financial Supervision and Administration promulgated the Measures for the Management of Capital of Commercial Banks, which will be officially implemented from January 1, 2024. The Measures further improve the capital supervision rules of commercial banks, promote banks to strengthen risk management, and improve the quality and efficiency of serving the real economy.
It is worth noting that in 2023, the anti-corruption actions of the banking industry have been significantly strengthened, and the number of cases and investigation targets has increased by nearly 40% year-on-year. According to relevant media statistics, in 2023, a total of 76 cadres in the banking system will be investigated, including 6 cadres at the middle management level.
Since the beginning of this year, the anti-corruption campaign in the banking sector has continued to deepen. On April 12, Honest Jiangxi released news that Yu Jian, vice president of Jiangxi Bank, was investigated; On April 26, the website of the Central Commission for Discipline Inspection and the State Supervision Commission announced that Guo Xingang, the former president of the Zhejiang branch of the Bank of China, was under investigation; On April 30, the Panjin Municipal Commission for Discipline Inspection and Supervision notified that Ma Ming, the former chairman nominee of Panjin Bank, was transferred to the procuratorate for review and prosecution in accordance with the law. On May 7, according to the website of the Central Commission for Discipline Inspection and the State Supervision Commission, An Liyan, the former deputy general manager of the investment banking department of the head office of the Industrial and Commercial Bank of China, was transferred to the procuratorate for review and prosecution in accordance with the law for serious violations of discipline and law.
In addition, the China Development Bank's related cases continue to surface. On January 11, Wang Yongsheng, the bank's former vice president, was arrested; On January 12, Zhang Chi, the former president of the bank's Jilin branch, was investigated; On January 25, Yu Zeshui, the former president of the bank's Shandong branch, was investigated; On March 13, former vice president Li Jiping was included in the investigation; On May 8, Wang Zhun, the former vice president of the bank's Qinghai branch, was suspected of serious violations of discipline and law.
Overall, while the domestic banking industry has strengthened supervision and anti-corruption actions, the dynamics of the global economy have also had an impact on the strategic adjustment of China's banking industry.
According to the IMF's latest World Economic Outlook, global growth is expected to be 3.2% in both 2024 and 2025. Growth in advanced economies is expected to increase slightly, while growth in emerging market and developing economies is likely to slow slightly.
In the face of global economic development, China's banking industry is adjusting its strategy to better serve China's modernization. On the evening of May 9, the State Administration of Financial Supervision officially issued the "Guiding Opinions on the Banking and Insurance Industry to Do a Good Job in Finance", focusing on the specific implementation of the "Five Articles" in the banking and insurance industry, and the "Guiding Opinions" clearly put forward the key work in the following five aspects, namely: science and technology finance, green finance, inclusive finance, pension finance, and digital finance. (Produced by Thinking Finance)■