Banking industry urgently needs to create more value: report

Source:Global Times Published: 2019/11/7 21:55:23

A view of People's Bank of China in Beijing. File photo: VCG

The banking industry urgently needs to transform itself to create more value in a bid to achieve high-quality development, amid a background of rising internal and external challenges faced by the industry, said a report released by consulting firm McKinsey & Company on Thursday. 

The report said the Chinese banking industry faces internal and external challenges this year, such as rising banking credit risk and the loss of increases in value, which will affect the realization of profits.

The banking industry still lacks sufficient management ability, and financial technology companies pose a challenge as they are good at using technology and ecosystem advantages, John Qu, senior partner at McKinsey & Company said on Thursday. 

"The banking industry has always been dominated by scale growth. The heavy capital model has not been fundamentally improved, and light capital development still has a long way to go," he said. 

The report is based on a pool of 40 banks. By the end of 2018, these 40 banks managed 87 percent of the assets of China's commercial banking industry and contributed 90 percent of net profit after tax.

The banks achieved a total profit of about 522.5 billion yuan ($74.93 billion); the average return on capital was 16.3 percent, down 0.7 percentage points from 17.0 percent in 2017, and fell for the third consecutive year. Among them, only 27 banks had positive economic profits.

Joint-stock banks and major city commercial banks face the most competitive pressure, the report showed. 

The report found that some industries, such as manufacturing and wholesale and retail, have large loans, high non-performing loans, and high capital consumption, and these industries are not creating economic profits for bank loan portfolios.

The report also said products that are partially dependent on imports and exports, such as automobiles, agricultural products, aircraft, machinery and electronics, may be affected by the Sino-US trade conflict. Therefore, in the corresponding industries, banks may face uncertainty about loan risks, it noted.

Posted in: ECONOMY

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