www.pwchk.com Chinese Bankers Survey 2016 Executive summary February 2017 Preface We are pleased to present the Chinese Bankers Most bankers in the survey believe that the top Survey 2016 report, prepared jointly by the China priority in addressing risk is "to improve cash Banking Association (CBA) and PwC. Now in its collection, accelerate write-offs and disposal of eighth year, the report keeps track of developments collaterals". While increasing NPL disposal efforts in China’s banking sector from the perspective of a through conventional means such as write-offs, group of bankers. collections and transfers, Chinese banks are also actively exploring a diversified range of alternatives, This year’s survey dug deep into the core issues including NPL securitisation, cooperating with the while maintaining a broad scope. Dr. BA Shusong, big four asset management companies (AMCs), and the project leader, together with the project team, transfer of income beneficial rights. There is a interviewed 15 senior bankers to get their insights section in this report summarising bankers’ views into the sector. Seven of the 15 bankers are at C- on the major challenges regarding disposal of NPLs. suite level (director, vice president or above). These interviews complemented the online survey With China’s economic structural reform at a critical covering 31 provinces in mainland China (excluding juncture, Chinese banks are expected to play a more Hong Kong, Macau and Taiwan). With a total of active role in fulfilling social responsibilities by 1,794 valid responses collected, the survey sampling serving the real economy. With regard to economic process has taken into account participants’ restructuring, most bankers believe that “upgrading geographical regions, grades, types of financial and transforming manufacturing sector, and institution, and if the institution is listed on stock exploration of new markets" brings many exchange(s) or privately held. These factors opportunities to their sector. It is also widely agreed contributed to a wide and full representation of by the bankers that supporting the real economy China’s banking sector. and bringing down borrowing costs while removing financing barriers are paramount, as the real The total assets of Chinese banking institutions economy is the backbone of the country’s wealth amounted to over RMB 200 trillion for the first time creation. In response to “supply-side structural in 2016. Nevertheless, due to the pressure of rising reform”, over 80% of bankers in the survey are non-performing loan (NPL) ratios, narrowing net committed to adjusting loan portfolios in order to interest margin (NIM), and declining return on support emerging industries. Banks, they argue, investment portfolios, Chinese banks’ profit growth should launch a variety of products and services to continued to slow, with medium- and large-sized support the central government’s initiatives, such as banks experiencing a "new normal" of single-digit the scheme to “link equity investment with lending”, growth. Banks’ existing business models are being "debt-for-equity swaps”, and green finance. These challenged dramatically, as the Internet and mobile are all regarded as part of Chinese banks’ social devices are widely used by consumers. The banking responsibilities to serve the real economy. landscape in China is poised to be re-shaped by new business models as a result of the adoption of new This year’s survey gives more focus on “Internet financial technologies (FinTech). Finance”, an emerging business model in China that resembles what is known as FinTech in the West. In light of a more challenging and complicated Over the past several years, many new technologies, external environment in 2016, bankers’ expectations such as data analytics, cloud computing, artificial on revenues and after-tax profits growth over the intelligence and blockchain have been applied in a next three years are lower than previous years, with wide range of sub-sectors in financial services, credit asset quality being the area of most concern. including payment and clearing, lending, wealth Chinese Bankers Survey 2016 2 management, retail banking and insurance. While For further information or enquiry, please contact such technological advances have taken a toll on the CBA, PwC or the Project Leader. traditional banking businesses, bankers see opportunities. They are capitalising on these by PAN Guangwei integrating technologies with innovative ideas, Executive Vice President, especially by integrating the Internet with their China Banking Association existing products and services. This is clearly demonstrated by the fact that bankers continue to David WU attach great importance to Internet Finance in 2016, Beijing Senior Partner, PwC China with half of them committing to put Internet Finance as a high priority and to increase Dr. BA Shusong investment. In addition to the promising Project Leader opportunities ahead, over half of the bankers in the survey regard information technology (IT) as the top risk when developing new systems for internet December 2016, Beijing finance. We would like to take this opportunity to thank all those who participated in the survey. They spared time out of their busy schedules to complete questionnaires and talk to us, sharing their views, observations and valuable experience. We hope this survey report helps readers better understand the developments and prospects of China’s banking sector, as it is presented from the perspective of those practitioners. We look forward to receiving your valuable comments and suggestions, which will drive us to improve in the future. Chinese Bankers Survey 2016 3 Participating Banks A total of 166 Chinese banking institutions participated in the online survey and interviews. A full list of participating banks is shown below: 1. Policy banks (3) 4. Foreign (joint venture) banks (9) China Development Bank Bank of East Asia (China) The Export-Import Bank of China Standard Chartered Bank (China) Agricultural Development Bank of China Citibank (China) 2. Large commercial banks (6) Hang Seng Bank (China) Bank of China Fubon Bank Agricultural Bank of China Australia and New Zealand Banking Group (China) Industrial and Commercial Bank of China OCBC Wing Hang Bank (China) China Construction Bank Bank of Tokyo-Mitsubishi UFJ (China) Bank of Communications Allied Commercial Bank Postal Savings Bank of China 5. City commercial banks (63) 3. Joint-stock commercial banks (12) Bank of Beijing China CITIC Bank Bank of Tianjin China Everbright Bank Bank of Chengde Huaxia Bank Bank of Langfang China Minsheng Bank Baoshang Bank China Merchants Bank Bank of Chengdu Industrial Bank Bank of Dalian China Guangfa Bank Bank of Shanghai Ping An Bank Bank of Shangrao Shanghai Pudong Development Bank Shengjing Bank Hengfeng Bank Bank of Chongqing China Zheshang Bank Datong Bank China Bohai Bank Bank of Deyang Chinese Bankers Survey 2016 4 Dezhou Bank Bank of Ningxia Dongying Bank Panjin City Commercial Bank Bank of Fuxin Bank of Pingdingshan Bank of Ganzhou Qilu Bank Dazhou City Commercial Bank Qishang Bank Guangxi Beibu Gulf Bank Bank of Qingdao Bank of Guangzhou Bank of Rizhao Bank of Guiyang Xiamen International Bank Guilin Bank Shanghai Huarui Bank Harbin Bank Weihai City Commercial Bank Hami City Commercial Bank Bank of Weifang Hankou Bank Bank of Urumqi Bank of Hangzhou Bank of Xi’an Huishang Bank Yantai Bank Bank of Jilin Yangquan City Commercial Bank Bank of Jining Bank of Yingkou Jiangxi Bank Zaozhuang Bank Bank of CTS.JZ Chang’an Bank Jinshang Bank Changzhi Bank Bank of Lanzhou Zhejiang Tailong Commercial Bank Linshang Bank Bank of Zhengzhou Longjiang Bank Zhongyuan Bank Luzhou City Commercial Bank 6. Rural financial institutions (73) Bank of Luoyang Shanghai Rural Commercial Bank Mianyang City Commercial Bank Shenyang Rural Commercial Bank Nanchong City Commercial Bank Shenzhen Rural Commercial Bank Bank of Inner Mongolia Chengdu Rural Commercial Bank Bank of Ningbo Dalian Rural Commercial Bank Chinese Bankers Survey 2016 5 Xiamen Rural Commercial Bank Hunan Qiyang Rural Commercial Bank Anxiang County Credit Cooperative Hunan Rucheng Rural Commercial Bank Bazhong CDB Village Bank Hunan Chenzhou Rural Commercial Bank Baotou City Donghe Jingu Country Bank Hunan Provincial Rural Commercial Bank Beijing Fangshan SRCB Rural Bank Hunan Shuangfeng Rural Commercial Bank Cenxi Beibu Gulf County Bank Hunan Taoyuan Rural Commercial Bank Changde Rural Commercial Bank Hunan Xiangtan Tianyi Rural Commercial Bank Xiangtan Rural Commercial Bank Hunan Xiangxiang Rural Commercial Bank Durbote Run Sheng Rural Bank Hunan Xinhuang Rural Commercial Bank Gansu Province Rural Credit Union Hunan Yizhang Rural Commercial Bank Gongyi SPDB Rural Bank Hunan Zixing Rural Commercial Bank Guang’an Evergrowing Rural Bank Jiangsu Province Suzhou Changshu City Rural Bank Guanghan Zhujiang Rural Bank Juancheng Baoshang Country Bank Guangxi Rural Credit Union & Cooperative Bank The Federation of Kunming Rural Credit Cooperatives Guangyuan City Baoshang Guimin Country Bank Leshan Kunlun Country Bank Guizhou Rural Credit Union Liaoning Dashiqiao Longfeng County Bank Hanshou Rural Commercial Bank Inner Mongolia Rural Credit Cooperative Honhhot Jinqiaohetao County Bank Ningxia Yellow River Rural Commercial Bank Hubei Rural Credit Cooperatives Pingyi Hanyuan County Bank Hunan Guidong Rural Commercial Bank The Federation of Qujing Rural Credit Cooperatives Hunan Hengyang Hengzhou Rural Commercial Bank Xiamen Xiang’an Minsheng County