China

Details

  • Type: Business and industry issue, Press release
  • Date: 12/9/2008

Chinese banks relatively less affected by financial turmoil says KPMG 

 

Greater professionalism and transparency contribute to long-term growth

Income diversification and domestic consolidation remain steady

Hong Kong, 9 December 2008

 

China's banking sector has been less affected by the global financial turmoil due to its relatively closed banking system, good liquidity position, and limited exposure to toxic U.S. financial products. The financial turbulence will lead to slower economic growth and thus a potential increase in non-performing loans, but Chinese banks should grow steadily in the long term, boosted by their increasing professionalism and transparency as well as their transformation into all-around financial conglomerates, according to KPMG's "Mainland China Banking Survey 2008".

KPMG's third "Mainland China Banking Survey" covers 83 banks this year, representing 86 percent of all banking assets in China. The report focuses on prevailing trends in China's banking sector, as well as the development of Chinese banks.

In 2007, China's banking sector achieved a year-on-year net profit growth of more than 50 percent on the back of higher net interest margins, as lending became more profitable. Income diversification into other financial service areas has been healthy. Non-interest income has grown by 48.1 percent on average from 2006 to 2007, for the 76 banks that disclosed information for both years.

"Income diversification has been driven by new government regulations, which have enabled banks to develop into financial conglomerates more in line with their international peers," said Mr. Simon Gleave, Partner in Charge, Financial Services, KPMG China.

"The uncertainty surrounding interest income has also been a key reason for banks' diversification of income sources. This is clearly reflected in the type of investments they are making," explained Mr. Gleave, noting that during late 2007 and the first half of 2008, market players focused on investments in the non-banking financial sector, such as insurance, fund management, leasing, and trust companies.

The report states that consolidation via the establishment of provincial or regional banks among 124 city commercial banks, which account for six percent of the country's total banking assets, was brisk throughout 2007. Indeed, a growing number of banks have also been granted trans-regional expansion licenses, allowing them to do business outside of their immediate regions. Despite a slower rate than in 2007, domestic consolidation has remained healthy this year.

Elsewhere, there has been steady progress to commercialise China's policy banks, including the China Development Bank (CBD), the Export-Import Bank of China (Eximbank), and the Agricultural Development Bank of China (ADBC). This type of transformation is often achieved through cooperation with external parties: CDB reached an agreement with Central Hujin Investment Corp in late 2007 for a USD 20 billion injection as part of its transformation. Eximbank and CDB have joined hands with Italian bank, Intesa Sanpaolo to establish a joint venture private equity fund called Mandarin Capital Partners. In August 2008, ADBC signed a memorandum of understanding with National Australia Bank to cooperate in rural banking expertise and staff training.

The report indicates that IPO activity among banks cooled significantly this year as many have shelved listing plans in light of the stock market downturn. However, there are expectations that activity will pick up in 2009 and a number of banks have indicated a desire to go public, including China Everbright Bank, Hangzhou Bank, Shengjing Bank, Bank of Shanghai, Bank of Tianjin, Bank of Wenzhou, and Bank of Dalian.

"Overall, we should not downplay the risks facing Chinese banks - especially in light of the current environment. Global market uncertainties and appreciation pressure on the Renminbi continue to increase market risk. However, the Chinese banking sector remains reasonably healthy and many banks have managed to cut their NPL ratios," commented Mr. Gleave.
 

 

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About KPMG

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The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss cooperative. KPMG International provides no client services.

About KPMG China

KPMG China has 12 offices (including KPMG Advisory (China) Limited) in Beijing, Shenyang, Qingdao, Shanghai, Nanjing, Chengdu, Hangzhou, Guangzhou, Fuzhou, Shenzhen, Hong Kong SAR and Macau SAR, with more than 8,500 professionals.

In 1992, KPMG became the first international accounting firm to be granted a joint venture licence in China, and our Hong Kong SAR operations have been established for over 60 years since 1945. This early commitment to the China market, together with our unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in our appointment by some of the China's most prestigious companies.

As China businesses join the global economy and international companies seek to enter the China market, KPMG's blend of international experience and local knowledge makes us well-positioned to serve our clients in this increasingly complex, but exciting market.

Our single management structure for all our China offices allows efficient and rapid allocation of experienced professionals wherever the client is located in China. The flexibility of this single structure allows us to effectively serve companies across China, and we have many projects where professionals from different offices work together on an work engagement under the supervision of a single nominated client partner, who has operational control of all resources.

Our business in China has established industry groups, enabling targeted, industry-specific experience and solutions to be delivered where needed. For our clients, this focus on industry and country specific knowledge means we can deliver exceptional people with an intimate knowledge of your specific business issues, as well as an overriding commitment to strive for the highest quality services.

For media enquiries, please contact:

Nina Mehra

Senior Manager, Media Relations

KPMG China

 +852 2140 2824 (Direct)

   +852 9724 6092 (Mobile)

 nina.mehra@kpmg.com

 

 

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