China | Banking Monitor

Summary

Although bank assets continued to expand in 2022, banks' profitability is weighed by narrowing interest margins amid a challenging operating environment. Asset risks are rising, the risks associated with the property market could exacerbate the debt overhang problem.

Key points

• Key points:
• Despite the lower funding costs, banks’ profitability is weighed by narrowing interest margin amid a challenging operating environment.
• The NPL ratio declined as banks’ sustained disposal of bad loans. However, asset risks are rising.
• Capital adequacy ratio remained stable, but needs more capital to support its forthcoming credit spree.
• Although bank’s exposure to the housing sector is declining, the risks associated with the property market could exacerbate the debt overhang problem.
• Banks interconnectedness with the shadow banking system continues to diminish.

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