A more stable macroeconomic environment, improvement in funding profiles and regulatory tightening that curtailed Chinese banks’ reliance on market funding has led to improved results for the first six months of the year. Still, lower net interest margins have pressured their profitability.
"The banks' H1 2017 performance demonstrates that regulatory measures implemented since January this year have been successful in containing financial risks and unwinding some shadow banking and interbank activities," said Nicholas Zhu, a Moody's vice president and senior analyst in a new report.
"These positive outcomes will likely continue under the current regulatory environment—a credit positive for the banks, because such a situation would relieve the strain on their capital and funding positions, although at the expense of profitability.”
Banks that have relied on market funds to support their asset expansions are likely to see lower profitability, Moody’s analysts said.
The 16 banks that Moody’s analyzed in the report account for more than 70% of total assets for Chinese commercial banks. Their average asset growth slowed to 4.4% during the first half of the year, due partly to general declines in their investment in loans and receivables. Loan growth was also sluggish, with mortgage loans under stress thanks to tightened macro-prudential measures on property transactions.
– Nicholas Stern, managing editor