China Banking Monitor

Summary

Although the non-performing loan ratio remained stable and the capital adequacy ratio still sufficient to meet financial needs, there is a diverging trend between large and small commercial banks. Some small banks are subject to capital shortfall amid deteriorating asset quality and persistent regulations on shadow banking.

Key points

• Key points:
• Credit growth remained weak, which are mainly supplied through banks’ balance sheet and dominated by consumer and residential mortgage loans.
• Banks’ net profit managed to grow at a modest pace as banks shift to traditional lending from interbank activities.
• Although the headline NPL ratio remained stable, asset quality diverged among big and smaller banks as the regulators have enforced a stricter standard of NPL recognition policy.
• Capital adequacy ratio was supported by banks’ issuance of capital instruments. Small banks are still subject to capital shortfall amid deteriorating asset quality and persistent regulations on shadow banking activities.
• Banks’ liquidity remained adequate but is subject to challenges of credit event.

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