2023 Will Be Witness To Chinese Banks Facing Revenue Issues

It is being perceived that the banking sector in China is going to face revenue pressures this year as well, amidst lukewarm demand for loans and slim net interest margins.

Growth in the loan segment is expected to be not that great at 11%, which is similar to 2022, as per the Fitch Ratings report.

It is well to be noted that mortgage repricing to reduced rates as well as ongoing deposit competition between banks is going to further add pressure on the lenders’ net interest margins, says the rating agency. Apparently, the net interest margin did contract to 1.9% in 2022 as compared to 2.1% a year earlier, which itself reflected a slim demand in the retail loan.

Residential mortgage demand as well as property development loans are pretty much expected to stay weak and add pressure on the total lending growth.

The property development loans saw a growth of a meagre 3.7% year-on-year as well as 1.6% half-on-half by 2022’s end, as per the agency. This is in spite of the fact that various policy efforts were put in place to encourage bank lending to the sector.

Furthermore, the rise in mortgage prepayments in the second half of 2022 and slow new home sales have both led to a dip of 0.2% in the banking sector’s mortgage loan balance vis-à-vis the first half of the same year.

That said, there are expectations from Fitch that the lending is going to increase in infrastructure, micro- and small-scale enterprises, and green loans. Significantly, green loans are meant for exclusively sustainable purposes.

Notably, the MSE loans went on to grow at 24% in 2022, thereby accounting for 13% of the overall system loans that were made during the year.