Review and Outlook of China Banking Industry in 2014

Transcription

April 2015
Banking Newsletter
Review and Outlook of
China Banking Industry in 2014
Most listed banks saw
their profit growth drop
to single-digits in 2014
2.60% 1.23%
12 Major Listed Banks’ NIM
edged up by 0.03 ppts
NPL ratio of 12 Major Listed
Banks rose by 0.24 ppts
From this issue, the sample size of the listed banks
covered has been expanded from 10 to 12 major
listed banks that have released their 2014 annual
results on or before 20 April 2015. These 12 banks
as defined by the China Banking Regulatory
Commission are Large Commercial Banks and
Joint Stock Commercial Banks. The total assets of
these banks in 2014 accounted for 73.22% of the
assets of China’s commercial banking sector.
www.pwccn.com
Editorial Team：
Editorial Team
Editor-in-Chief：Yan Hu
Deputy Editor-in-Chief：Luna Liu, Jeff Deng
Macro Overview：Jeff Deng
Listed Banks Analysis：
Joanne Song, Sherry Song, Wendy Li, Grace Rong, Luna Liu,
Jeff Ma, Evelyn Liu
Industry Hot Issues:
Yidel Wu, Kiki Chen, Weiwei Su, Ning Liang, Kevin Wang,
Jeff Deng
Advisory Board：
Raymond Yung, Jimmy Leung, Margarita Ho, Richard Zhu
Introduction
We are pleased to present our Banking Newsletter (the Newsletter), PwC’s analysis of China’s Listed
Banks and the wider industry, which is now in its 22 edition.
To provide a more comprehensive perspective to readers, from this issue we have strengthened the
content by including more in-depth analysis from a wide range of perspectives across banking industry
and financial markets, as well as an overview of listed banks’ financial results. The sample size of the
listed banks covered has also been expanded from 10 to 12 major listed banks (we refer them as the
Major Listed Banks in following context) that have released their 2014 annual results on or before 20
April 2015. These banks as defined by the China Banking Regulatory Commission (CBRC) are:
Large Commercial Banks (LCBs)
Industrial and Commercial Bank of China Limited (ICBC)
China Construction Bank Corporation (CCB)
Agricultural Bank of China Limited (ABC)
Bank of China Limited (BOC)
Bank of Communications Co. Ltd (BOCOM)
Joint-Stock Commercial Banks (JSCBs)
China Merchants Bank Co., Ltd (CMB)
Shanghai Pudong Development Bank Co., Limited (SPDB)
China CITIC Bank Corporation Limited (CITIC)
China Minsheng Banking Corporation Limited (CMBC)
China Everbright Bank Company Limited (CEB)
Ping An Bank Co., Ltd (PAB)
Hua Xia Bank Co., Limited (HXB)
The total assets of the Major Listed Banks for 2014 accounted for 73.22% of the assets of China’s
commercial banking sector. These banks are presented in order of their total assets size as of 31
December 2014. Unless otherwise stated, all the information in the newsletter comes from publicly
available sources, e.g. listed banks’ annual reports and statistics from regulatory bodies. All figures are
prepared under China Accounting Standards (CAS) and expressed in RMB (except for ratios).
For more information, please ask your PwC contacts or any of those listed in the Appendix as Banking
and Capital Markets Contacts.
Banking Newsletter
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April 2015
3
Table of Contents
1. Macro Overview
5
2. Analysis of Listed Banks’ Results for 2014
13
3. Highlights
39
4. Appendix
53
Banking Newsletter
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April 2015
4
1. Macro Overview
•
Confidence in emerging economies tested as global growth diverges
•
China to be the largest economy under the “new normal”
•
Slowdown most significant in property, retail & wholesale, and
manufacturing sectors
•
Liquidity management remains a challenge despite plenty of measures
being implemented
•
Banks’ profit growth slows as credit risk accelerates
•
2015：More opportunities than challenges on new growth path
•
China banking industry 2014 at a glance
Banking Newsletter
PwC
April 2015
5
Confidence in emerging economies tested
as global growth diverges
Global economies continued along diverging
paths in 2014. The US recorded a strong recovery,
which prompted growing expectations of an
interest rate hike as the Federal Reserve finally
exited quantitative easing (QE). At the same time,
the central banks of both Japan and Europe
started another wave of QE stimulus, due to their
economies’ sluggish growth.
An earlier PwC survey that targeted CEOs of
multinational corporations (MNCs) suggests
confidence in US growth has picked up rapidly
and is even overtaking that of China, while
confidence in Brazil and Russia has dropped (see
graph 1).
Emerging economies’ growth was challenged too,
with China seeing its slowest Gross Domestic
Product (GDP) growth of 7.40% in 24 years.
Other BRICS countries, i.e. Russia, India, Brazil
and South Africa experienced slowdown of
different pace.
Graph 1
2015
Top 10 growth markets as picked by Global CEOs, 2015 Vs. 2014
US
China
Germany
38%
UK
11%
Brazil
10%
Brazil
Germany 12%
UK
10%
34%
19%
India Japan
Russia Indonesia Australia
9%
8%
6%
6%
6%
2014
33%
China
30%
17%
India Russia Japan Indonesia Mexico
5%
7%
7%
7%
7%
US
Source: PwC 18th Global CEO Survey, respondents include 1,322 CEO from 77 economies across 22 industries.
Note: The survey asked each respondent to select up to 10 economies that they were most confident about. As a result percentages
add up to greater than 100%.
Banking Newsletter
PwC
April 2015
6
China to be the largest economy under the
“new normal”
Despite the slowdown, China’s growth of 7.40%
is still well higher than most other economies in
the world, and within the target range
(approximately 7.50%) set by the government.
In a global macro trend study by PwC titled “The
World in 2050: Will the shift in global economic
power continue?”, it is projected that China will
grow at an annual rate of 6.30% in the years
leading up to 2020 before slowing further.
Despite this, the study still believes that such
growth will make China the world’s largest
economy (by market exchange rates) in 2028,
overtaking the US.
2015 growth target: around 7.00%
China’s growth path has shifted from “high speed
to medium-high speed” after three decades of
rapid development according to the country’s
leadership. President Xi Jinping referred to this
new growth path as the “new normal” during the
second half of 2014.
In the Government Work Report delivered by
Premier Li Keqiang in March 2015, the GDP
growth target for 2015 was lowered to
approximately 7.00% for the first time, which
indicates the Chinese government has adjusted
its attitude towards growth.
Graph 2
China GDP growth, year on year
16%
14%
12%
10%
1991, 9.20%
8%
2014, 7.40%
6%
4%
1990, 3.80%
2%
0%
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
Source: National Bureau of Statistics & PwC
Banking Newsletter
PwC
April 2015
7
Slowdown most significant in property, retail
& wholesale and manufacturing sectors
Property recorded the most significant slowdown
of all industries in 2014, with its value added
growth lower than in 2013.
Residential property prices for newly-built units
in 70 major cities were stable during 1H 2014,
with only one city recording price falls over the
period. Yet since the beginning of 2H, the
number of cities recording price falls started to
surge (see graph 3). The trend has become even
more evident since September, with 68 out of 70
cities recording price falls in December.
Investment in property development slumped in
2014, with growth slowing to its lowest since
1998. Property sales saw their first drop since
2008, both in terms of total areas sold and
transaction amounts. New property construction
by areas also recorded its largest fall since 1998 .
Graph 3 Residential property price movement in 2014
In March 2015, the People’s Bank of China
(“PBoC” or the “central bank”), Ministry of
Housing and Urban-Rural Development and the
CBRC jointly announced policy measures to ease
restrictions on down payment requirement ratio
for “second home” buyers (those individuals or
households who own one residential property
and are seeking to buy another).
Apart from property, the retail & wholesale and
manufacturing sectors saw marked slowdown too.
Both retail sales and industrial production
growth slipped in December 2014 (see graph 4).
Mild inflation
Inflation remained mild as the economy slowed,
with the Consumer Price Index (CPI) rising
2.00% and the Producer Price Index (PPI) falling
1.90% in 2014.
Graph 4 Retail sales & industrial production growth
Number of cities
15%
70
14%
60
Retail sales
13%
50
12%
40
11%
Industrial production
10%
30
9%
20
8%
7%
10
6%
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Rise
No change
Banking Newsletter
PwC
5%
Fall
Note: January and February data are usually combined to avoid
the seasonal distortion of Chinese New Year.
April 2015
8
Liquidity management remains a challenge
despite plenty of measures being implemented
Broad money supply (M2) growth slowed in 2H
2014, with the ratio of M2 to GDP growth
standing at 1.49, the lowest level in past three
years and well below the 23 year historical
average of 1.91 (see graph 5).
Liquidity is perceived to be a constant challenge.
As the surplus in the balance of international
payments reduce and exchange rates become
increasingly volatile, liquidity management will
be more challenging in short term. In mid-term,
mismatch of assets and liabilities for commercial
banks’ will cause a liquidity shortfall. While
infrastructure projects and properties which
require long term funding commitments become
major targets for investment, banks’ deposit base
become less stable. This will lead to a rise in
liquidity risk over the longer term.
The PBoC has implemented plenty of monetary
policies to support the real economy by providing
liquidity to banks, including open market
operations, short term liquidity support facilities
and Standing Lending Facilities (SLF). The
central bank has also introduced innovative tools
such as the Medium-term Lending Facility (MLF)
and Pledged Supplementary Lending (PSL).
Statistics indicated PBoC has injected a total of
RMB 1.14 tn from September to December.
Market liquidity was stable over the year, with
interest rates for both interbank lending and
pledged repo moving within a relatively small
range. The same applied to the yield on
government bonds.
The PBoC cut benchmark interest rates for the
first time in two years in November 2014 and
again in February 2015 in an attempt to bring
down real borrowing costs. The PBoC also
lowered deposit reserve requirement ratio (RRR)
in February and April 2015 respectively.
Graph 5 M2 growth to GDP growth, 1991-2014
4.00
3.50
3.00
2.50
2.00
1.50
1.49
1.00
0.50
0.00
M2 growth / GDP growth
Historical average
Source: National Bureau of Statistics, PBoC & PwC
Banking Newsletter
PwC
April 2015
9
Banks’ profit growth slows as credit risk
accelerates
2014 was an especially challenging year for China
banking industry against the back drop of
economy slowdown and rapidly developing
internet-based financial products and services.
NPL ratio soared by 0.25 percentage point from
2013 year end to 1.25% as of 2014 year end.
According to CBRC, commercial banks (including
large commercial banks, joint-stock commercial
banks, city commercial banks, rural commercial
banks and foreign banks) recorded an aggregate
net profit of RMB 1.55 bn in 2014, up 9.65% yearon-year. The growth rate was only 4.83 ppts
lower in 2013 and indeed, the first time it has
fallen to single-digits.
Credit risk increased rapidly in 2014 for
commercial banks, with non-performing loan
(NPL) balances surging by 42.31% or RMB
250.60 billion to RMB 842.60 billion as of year
end. The NPL increase in 2014 was larger than
that for the previous three years combined.
Graph 6
Net profit growth for commercial banks
Net profit, in billions
1,600
36.34%
1,400
1,200
Growth
1,555
1,418
40%
35%
1,239
30%
1,041
1,000
25%
18.96%
800
20%
14.48%
600
Graph 7
NPL balance, in billions
900
500
200
200
5%
100
0%
-
Net profits
Sources：CBRC & PwC
Banking Newsletter
PwC
2013
2014
Growth
493
1.1%
428
400
10%
2012
592
600
400
2011
1.25% 1.2%
700
300
0
NPL ratio
1.3%
843
800
15%
9.65%
NPL growth for commercial banks
1.0%
1.00%
1.00%
0.95%
0.9%
0.8%
2011
2012
NPL balance
2013
2014
NPL ratio
Sources：CBRC & PwC
April 2015
10
2015：More opportunities than challenges on
new growth path
In 2015, the US economy is expected to continue
its recovery. Yet it still remains to be seen how
consumption and employment in Japan and
Europe will respond to new QE measures. For
emerging economies, continued capital outflow
and currency depreciation remains the biggest
risks as growth slows.
Apart from above risks, China is facing challenges
in a wide range of areas, including slowing fixedasset investments, over capacity in
manufacturing sector, weakening property
market, rising NPLs in banking sector and
continued expose to local government debt risk.
Commercial banks in China have been under real
pressure in 2015 due to the economic slowdown
as well as the competition being unleashed by
both market-based reforms and groups of new
entrants with digital technologies . On top of
these challenges are increasingly sophisticated
liquidity management requirements and tougher
regulations on capital adequacy ratios.
That said, there are opportunities ahead. A PwC
survey targeted at global CEO reveals that three
quarters of respondents believe there are more
opportunities today than there were three years
ago. Half of respondents plan to increase their
headcount in the coming 12 months.
China’s top decision making authorities in
December 2014 identified a number of new
trends under “new normal”, which may boost
banks’ business in many ways. Over the medium
to long term, the country’s “One Belt and One
Road” initiative, regional integration among
Beijing, Tianjin and Hebei and the Yangtze River
Economic Belt will boost trade, mergers and
acquisitions (M&A) demand for financing. Banks
will be given a chance to redraw their regional
and international strategies in the light of these
macro-economic developments. the Chinese
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banking industry will face more opportunities
than challenges under the ‘New Normal’.
On banks’ businesses:
•
Assets – yields on interest-earning
assets will drop as the government
strives to reduce borrowing costs;
•
Liabilities – Costs on deposits will rise
due to continuing market-based reforms.
The introduction of Deposit Insurance
Act, robust internet-based wealth
management products and stock markets
will all affect banks’ deposit base.
•
Credit asset quality – NPL ratio is
expected to go up with pressures on
write-offs and disposals on the rise. The
risk of overdue loans to switch into the
NPL category is higher than ever,
affecting banks’ bottom line.
•
Business strategies – banks will have
to transform their business model from
deposit taking and lending to
intermediary business. Better customer
services and more efficient asset and
liabilities management is vital for banks
to retain clients.
Banks’ credit risk will increasingly be exposed in
2015. Banks need to get to grips with credit asset
quality pressures. A more prudent loan
impairment loss recognition policy may help to
control risks, while increased the disposal of
NPLs through write-offs and transfers will reduce
asset quality pressure.
Key data of Major Listed Banks’ business and
financial performance have been summarised on
the next page to help readers better understand
the industry in 2014.
April 2015
11
China banking industry 2014 at a glance
Major Listed Banks’ profit growth dropped to single digits
Most banks saw a drop in profitability indicators
1.18 tn
+7.29%
ROE
ROA
Operating income structure was differentiated
5.26%
3.66%
22.99%
18.54%
Large
Commercial
Banks
Net interest income
76.20%
Net fee and commission income
Joint stock
Commercial
Banks
73.36%
Other non-interest income
NIM and NIS expanded slightly for Major Listed Banks Intermediary business income structure differentiated
2.60%
2.42%
+0.03 ppts
+0.02 ppts
NIM
NIS
Top 3 intermediary businesses for LCBs
Bank cards
24.46%
Settlement
& clearing
18.84%
Consultancy
& advisory
16.02%
Assets continued to grow for Major Listed Banks
98.70 tn
+10.63%
Top 3 intermediary businesses for JSCBs
Bank cards
“Double increase” in both NPL balance and ratio
NPL balance +38.23%
NPL ratio +0.24 ppts to 1.23%
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Wealth
management,
private bank &
custodian
Agency
29.13%
23.42%
13.77%
April 2015
12
2. Analysis of Listed Banks’
Results for 2014
•
Net profit slowed to single-digit growth, with profitability indicators
(ROA & ROE) falling
•
Income mix: different patterns emerged
•
NIM and NIS expanded slightly, with growth pattern diverging
•
JSCBs saw relatively higher growth in fee and commission income
•
Asset mix: rising investments, shrinking interbank activities, stable
loans
•
Credit risk in the corporate loan portfolio continues to rise
•
NPL “double increase” as credit risk exposure accelerated
•
Deposit growth slowed, with L/D ratio rising for LCBs
•
WMPs issuance presented divergent trends
•
Capital adequacy ratio (CAR) improved
Banking Newsletter
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April 2015
13
Net profit slowed to single-digit growth
Banks’ earnings slowed further in 2014 as
provisions increased significantly due to
concerns over credit risk in light of the economic
downturn.
The slowdown in growth can be attributed to:
Most listed banks in our sample (see table 1) saw
their net profit growth drop to single-digit
territory in 2014. The Major Listed Banks
recorded aggregate net profits of RMB 1.18 tn,
7.29% more than in 2013. The growth in 2014
was 5.26 ppts lower than in 2013.
2) Net interest margin (NIM) and net interest
spread (NIS) rose slightly due to banks’
proactive asset pricing strategy and liquidity
management. This helped to offset the effect
of interest rate cut;
Profit growth for the five Large Commercial
Banks (5 LCBs) was largely driven by net interest
income as a result of expansion in interestearning assets. Meanwhile the seven Joint-stock
Commercial Banks (7 JSCBs) recorded strong
growth in both net interest income and fee &
commission income.
1) Slower growth in banks’ assets as a result of
the economic downturn;
3) Loan impairment charges increased
significantly as credit asset quality
deteriorated.
The aggregate loan impairment charges for the
Major Listed Banks totalled RMB 390 bn in 2014,
representing a year-on-year increase of 62.09%.
The loan impairment charges for the 7 JSCBs
increased by 108.37%.
Table 1 Net profit and growth for the Major Listed Banks in 2014
Listed banks Net profit (in billions)
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2014 growth
2013 growth
ICBC
276.29
5.07%
10.17%
CCB
228.24
6.10%
11.12%
ABC
179.51
8.00%
14.52%
BOC
177.20
8.22%
12.35%
BCM
66.04
5.72%
6.81%
CMB
56.05
8.32%
14.29%
SPDB
47.36
14.95%
20.08%
CITIC
41.45
4.37%
26.55%
CMBC
45.57
5.28%
12.98%
CEB
28.93
8.13%
13.27%
PAB
19.80
30.01%
12.72%
HXB
18.02
16.19%
21.22%
Total
1,184.46
7.29%
12.55%
April 2015
14
Profitability indicators (ROA & ROE) fall
The Key profitability indicators of the Major
Listed Banks fell in 2014 (see Graph 8), as net
profit growth slowed.
Although the PBoC lowered the benchmark
interest rate in 2014, the Major Listed Banks’
NIM expanded slightly thanks to a proactive
management of assets and liabilities as well as
improvement in pricing capabilities. However, as
most banks’ profits grew more slowly than their
total assets, their Return on Assets (ROA)
dropped in 2014 .
Owner’s equity grew faster because:
1)
Bond yields dropped in 2014, leading to a
substantial fair value gain on available-forsale financial assets recorded in the
comprehensive income and owners’ equity;
2)
Some listed banks issued preference shares
t0 strengthen their capital base.
Return on Equity (ROE) for most banks was on a
downward trend too. This was primarily due to
growth in owners’ equity (sometimes referred as
“net assets”) outpacing net profits’.
Graph 8
1.6%
1.5%
Change in profitability indicators for the Major Listed Banks
Return on Asset (ROA)
24%
CCB
ICBC
CMBC
22%
BOC
CMBC
CMB
23% ICBC
CMB
1.4%
1.3%
Return on Equity (ROE)
CEB
ABC
SPDB
21%
HXB
20%
1.2%
1.1%
CEB
ABC
SPDB
HXB
BCM
1.0%
19%
18%
17%
CITIC
CCB
BOC
16%
0.9%
CITIC
PAB
15%
PAB
0.8%
2014
2013
14%
BCM
2014
2013
Note: The ROE for Hua Xia in 2014 was 19.31%, 0.01 ppts
higher than in 2013.
Banking Newsletter
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April 2015
15
Income mix: different patterns emerged
The Major Listed Banks recorded an aggregate
operating income of RMB 3.14 tn in 2014, 14.24%
higher than that in 2013.
income falling, and net fee and commission
income as well as other non-interest income
rising.
The income mix for the 5 LCBs remained
relatively unchanged (see Graph 9). The
proportion of net interest income remained
nearly the same. Yet the proportion of fee and
commission income (sometimes referred as
“intermediary business income”) dropped due to
slower growth in 2014, which was affected by the
low growth in consulting and investment banking
businesses. Other non-interest income saw a
slight proportional rise, as fair value gains,
income from insurance and other non-banking
business enjoyed a rapid growth.
The regulatory bodies tightened the inspection of
listed banks’ intermediary businesses in 2014. As
a result the growth in fee and commission income
for the 5 LCBs dropped dramatically. Yet the fee
and commission income for the 7 JSCBs continue
to grow rapidly in these intermediary businesses
(se e Graph 11, Page 17). Its proportion of
operating income was 4.45 ppts higher than that
of the 5 LCBs’ and the gap was widening. This
was due to higher growth in bank card, agency
and e-banking business (eg. payment and
clearance income from mobile banking) for the 7
JSCBs.
The change in income mix for the 7 JSCBs was
evident, with the proportion of net interest
Graph 9 Change in income mix, LCB Vs. JSCBs
4.30%
3.66%
18.54%
19.59%
22.99%
76.20%
76.11%
73.36%
78.48%
2014
2013
2014
2013
5 LCBs
Banking Newsletter
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1.78%
5.26%
19.74%
7 LJSCBs
Net interest income
Fee and commission income
Note: other non interest income includes income, investment income, foreign exchange
gains and other income from changes in fair value; the other is insurance, leasing
and business of precious metals 。
April 2015
16
High interest income growth but lower
intermediary business growth
In 2014, the growth in both interest income and
fee and commission income for the 7 JSCBs was
higher than that of the 5 LCBs. The trends were
similar to 2013.
Growth in most listed banks’ interest income was
higher in 2014 than in 2013 (see Graph 10). Apart
from improvement in loan pricing capabilities, it
can be attributed to the fact that banks
reclassified consulting fees whose nature was
actually interest back to interest income in 2014.
In terms of fee and commission income, most
banks’ growth in 2014 was lower than in 2013.
CMB was the exception (see Graph 11).
CMB’s enhanced growth in intermediary income
was driven by custody and other trustee income,
bank cards and agency business. According to the
bank, it further promoted wealth management
products based on customer demand. The bank
also saw a rapid increase in income from credit
card repayment by instalments and POS income.
CMB, CITIC, PAB and HXB saw the most
significant improvements in interest income
growth. The higher interest income growth for
CMB and CITIC was due to a surge in interest
from investments, while PAB’s growth was driven
by interest income from loans.
Graph 10 Change in interest income growth
30%
CMB
PAB
CITIC
Graph 11 Change in intermediary business growth
90%
80%
25%
70%
AMC
20%
CCB
BOC
10%
CEB
BOCOM
CMBC
CITIC
30%
ICBC
BOC
CMBCCEB
AMC
20%
10%
ICBC
BOCOM
0%
0%
-10%
2014
Banking Newsletter
CMB
40%
ABC
5%
SPDB
60%
50%
SPDB
15%
PwC
PAB
2013
CCB
ABC
2014
2013
April 2015
17
NIM and NIS expanded slightly
The banking industry was challenged by a
number of forces in 2014, including interest rate
liberalisation, continued “financial
disintermediation” and a internet-based financial
products and services providers.
On the other hand, their funding costs have been
rising too, due to the continued broadening of the
floating range for deposit rates. This is coupled
with the increasing challenges from internetbased competitors.
Yet NIM for the Major Listed Banks as a whole
expanded by 0.03 ppts to 2.60% in 2014 (as
shown in Graph 12). NIS expanded by 0.02 ppts
to 2.42% compared with 2013.
It is estimated that the central bank will continue
to cut benchmark interest rates as well as lower
the deposit reserve requirement ratio in 2015.
This will make banks struggle to maintain the
current yields on interest-earning assets. Funding
costs on the liabilities side will rise further and in
turn bring pressure on NIM and NIS, Strong
stock market performance is also causing fund
inflows.
Since the restriction on lending rates was lifted,
the Major Listed Banks’ yield on loans has been
rising as they enhance the management of yields
on assets by pricing in credit risk and funding
costs.
Graph 12 Change in NIM for Major Listed Banks
3.0%
ABC
2.9%
CMB
CCB
2.8%
2.7%
AMC
ICBC
CMBC
2.6%
SPDB
2.5%
2.4%
CITIC
2.3%
2.2%
BOCOM
PAB
BOC
2.1%
CEB
2.0%
2014
2013
Note: The net interest margin (NIM) of BOC was 2.25%, which increased
by 0.01 points compared with year 2013.
Banking Newsletter
PwC
April 2015
18
Yields rise more than costs
Yields on interest-earning assets for the Major
Listed banks rose by 0.17 ppts to 4.79% in 2014,
while costs on interest-bearing liabilities rose by
0.15 ppts to 2.37% in the same period.
The rise in yields on interest-earning assets was
slightly faster than the rise in costs on interest
bearing liabilities, which led to the expansion of
NIM and NIS.
As opposed to the 7 JSCBs , the borrowers in the
5 LCBs’ loan portfolios were mainly state-owned
enterprises (SOEs) and large corporations. As a
result the yields on such loans were relatively
lower given low default risk.
That said, the 5 LCBs’ deposit base was broad,
with an extensive network of retail customers.
This enabled them to maintain funding costs at
lower level.
While the yields on interest-earning assets for the
7 JSCBs were higher than those of the 5 LCBs,
their costs on interest-bearing liabilities were
higher too (see Graph 13).
Graph 13 Comparison of yields and costs, LCB Vs. JSCBs
7 LJSCBs
5 LCBs
6%
6%
CCB
5%
4%
5%
BOCOM
ICBC
SPDB
ABC
4%
PAB
CMBC
CMB
CITIC
HXB
CEB
BOC
3%
3%
2%
2%
1%
1%
2014 average yield on interest-earning assets
2014 average cost on interest-bearing liabilities
Banking Newsletter
PwC
April 2015
19
NIM growth pattern diverged
The growth pattern of NIM for the 5 LCBs and 7
JSCBs has diverged in 2014.
Interest income from inter-bank activities
recorded the highest growth of all businesses for
the 5 LCBs (see Graph 14), with interest income
and expense mixes stable (see Graph 15 and 16).
Interest income from investments became the
highest growth (as high as 53.47%. ) segment for
the 7 JSCBs, where the proportion of interest
income rose by 4.57 ppts to 21.20% in 2014. The
growth was due to income from trust
beneficiaries rights and asset management
schemes.
Analysis of interest expense mixes for the 7
JSCBs suggested that they have been increasingly
reliant on inter-bank borrowings to make up for
the weak growth in deposits.
Graph 15 Interest income mix, LCB vs JSCBs
6.43%
5.72%
5.37%
5.71%
17.14%
17.04%
71.05%
71.53%
2014
2013
14.12%
15.98%
3.59%
3.95%
21.20%
16.63%
61.09%
63.44%
2014
2013
5 LCBs
7LJSCBs
Deposit with central banks
Interbank activities
Investments
Loans
Banking Newsletter
PwC
Graph 14 Interest income growth by business
60%
53.47%
50%
40%
27.42%
30%
15.89%
20%
10%
14.06%
12.60%
6.56%
9.57%
6.31%
0%
5 LCBs
7 LJSCBs
Loans
Investments
Deposit with central banks
Interbank activities
Graph 16 Interest expense mix, LCB Vs JSCBs
4.21%
3.96%
4.11%
3.75%
17.50%
15.61%
38.69%
37.72%
78.29%
80.43%
57.20%
58.53%
2014
2013
2014
2013
5 LCBs
Other borrowings
7 LJSCBs
Interbank liabilities and due to Central Banks
Deposits
April 2015
20
JSCBs record higher growth in fee and
commission income
The Major Listed Banks recorded net fee and
commission income of RMB 615.76 bn in 2014,
reflecting a growth of 14.15%. The growth was
lower than that of 2013 (21.30%). The 5 LCBs
experienced relatively slower growth in 2014 due
to regulatory policy changes, while the 7 JSCBs
saw a relatively higher growth (see Graph 18).
But when compared to 2013, 7 JSCBs’ growth
slowed in 2014.
Graph 17 Fee & commission income mix
5.89%
6.76%
7.97%
9.36%
12.52%
13.77%
15.51%
23.42%
The largest income segment for the Major Listed
Banks was bank cards, despite the proportion of
other segments being different. (see Graph 17).
16.02%
9.49%
18.84%
The top 3 businesses for the 5 LCBs were: 1) bank
cards; 2) settlement, clearing and forex trading;
3) consulting and investment banking.
24.46%
Top 3 businesses for the 7 LJSCBs were: 1) bank
cards; 2) WMPs, private banking and custodian;
3) Agency service.
6.86%
Bank cards
5 LCBs
29.13%
7 JSCBs
Graph 18 Comparison of growth in intermediary businesses in 2014, LCB vs JSCBs
In billions
5 LCBs
Growth
120
24%
90
18%
In billions
60
7 JSCBs
Growth
80%
50
60%
40
60
12%
30
6%
30
40%
20
20%
10
-
0%
(30)
-6%
(60)
-12%
Income
Banking Newsletter
PwC
2014 growth
2013 growth
-
0%
Income
2014 growth
2013 growth
April 2015
21
Assets growth slowed
Total assets of the Major Listed Bank expanded
to RMB 98.70 tn at the end of 2014, up 10.63%
compared to the end of 2013. Growth has
continued to slow over the past five years.
During last five years, total assets growth of the 7
JSCBs generally slowed with a relatively larger
fluctuation, reflecting the evolution of their
interbank activities and investments preferences.
Total assets of the 5 LCBs amounted to RMB
74.85 tn, up 8.98% compared to the end of 2013.
Yet the growth continued to slow (see Graph 19).
Total assets of the 7 JSCBs climbed to RMB 23.86
tn, up 16.13% compared to the end of 2013. The
growth rate was 2.64 ppts higher than that of
2013.
Graph 19 Total asset growth, LCBs vs JSCBs
In trillions
80
70
5 LCBs
Growth In trillions
74.85 20% 25
23.86
13.99%
15%
23.05%
20
25%
12.23%
50
9.51%
40
15
8.98%
20%
16.85%
16.13%
13.49%
10%
15%
10
30
10%
20
5%
5
5%
10
0
0%
2010
2011
2012
Total assets
Banking Newsletter
PwC
Growth
30%
25.19%
15.74%
60
7 JSCBs
2013
2014
Growth
0
0%
2010
2011
2012
Total assets
2013
2014
Growth
April 2015
22
Asset mix: rising investment, shrinking
interbank activity, stable loans
The asset mix for the 5 LCBs remained stable in
2014, with the proportion of interbank assets
falling and loan book rising slightly.
As for the 7 JSCBs, the proportion of loans fell
slightly, while the proportion of investment rose
significantly. Interbank assets saw a drop in
proportion accordingly as well, due to tightening
regulations.
At the end of 2014, the Major Listed Banks’ loan
balance reached RMB 52.32 tn, up 11.44% from
2013. The growth was slower than it was in 2013
(13.02%), with the 7 JSCBs’ growth higher than 5
LCBs.
Graph 20 Change in asset mix, LCB vs JSCBs
3.29%
3.26%
3.16%
2.92%
6.93%
7.35%
12.86%
16.15%
16.31%
16.58%
20.86%
21.01%
13.09%
22.58%
Graph 21 Loan growth for Major Listed Banks
In trillions
60
13.28%
18.53%
Growth
20%
18.53%
18%
50
14.52%
13.56%
16%
13.02%
40
11.49%
30
14%
12%
10%
8%
52.61%
51.80%
48.31%
49.11%
20
6%
4%
10
2%
2014
2013
2014
5 LCBs
7 JSCBs
Others
Interbank assets
Cash and deposits with central banks
Investments
Loans
Banking Newsletter
PwC
2013
0
0%
2010
2011
2012
Loan balances
2013
2014
Growth
April 2015
23
Loan mix remained stable
Loan mix in 2014 saw similar changes for the
Major Listed Banks, with the proportion of
corporate loans dropping and personal loans
rising. The proportion of discounted bills also
rose for the 5 LCBs (see Graph 22).
The proportion of corporate loans for 5 the LCBs
was higher than that of the 7 JSCBs, while the
proportion of personal loans for the 7 JSCBs was
higher.
Further analysis on the structure of personal
loans suggested housing loans composed the
largest share of the 5 LCBs’ portfolio (see Graph
23), with the proportion in 2014 rising by 2.26
ppts. Credit cards were the second largest
personal loan segment, with their proportion
rising by 0.75 ppt.
Graph 22 Change in loan mix, LCB vs JSCBs
2.55%
1.58%
2.16%
2.27%
28.89%
27.99%
31.03%
30.05%
In the case of the 7 JSCBs, personal business loan
were the largest segment in 2014, followed by
personal housing loans and credit cards.
In March 2015, the PBoC, Ministry of Housing
and Urban-Rural Development and CBRC jointly
announced policy measures to ease restrictions
on down payment requirement for “second
home” buyers. Such easing is expected to be a
boost to banks’personal housing loan businesses.
Credit card business growth should remain
robust as well, as the government is determined
to encourage private consumption. Large
purchasing through Credit card installment are
especially promising.
Graph 23 Change in personal loan mix
7.52%
8.16%
9.78%
9.94%
12.08%
11.33%
6.64%
6.36%
22.63%
19.29%
5.66%
4.96%
34.72%
70.43%
68.56%
2014
2013
5 LCBs
Corporate
Banking Newsletter
PwC
Personal
66.81%
67.68%
2014
2013
69.77%
36.04%
67.51%
2014
2013
32.88%
34.74%
2014
2013
7 JSCBs
5 LCBs
7 JSCBs
Discounted bills
Personal housing
Personal consumption
Personal business
Credit cards
April 2015
24
Credit risk of corporate loan portfolios
continues to rise
By geographical areas, the Yangtze River Delta
region still accounted for the largest portion of
loans in 2o14 (see Graph 24), followed by the
Bohai Rim and Western China regions.
By industry, the top 5 corporate borrowers for 5
LCBs were: 1) manufacturing; 2) transportation,
storage & postal services; 3) leasing & business
services; 4)real estate; 5) electricity, gas and
water production and supply. These industries
accounted for 69.24% of their corporate loan
portfolios. The top 5 industry for the 7 JSCBs
were: 1)manufacturing; 2) wholesale and retail;
3) real estate; 4)leasing and business services; 5)
transportation, storage and postal services. These
industries accounted for 71.70%. of their
corporate loan portfolio.
The top 3 industries for the 7 JSCBs were also
those experiencing the most significant
slowdown in economic growth.
Graph 24 Loan balance by geographical areas
Loan balance(In trillions)
14
Growth
35%
12
30%
10
25%
8
20%
6
15%
4
10%
2
5%
-
0%
Loan balance
Growth
Graph 25 Corporate loans by industry in 2014, LCB vs JSCBs
5 LCBs
JSCBs
24.61%
24.32%
Manufacturing
Manufacturing
Transportation, logistics and postal
services
15.97%
11.10%
Leasing and commercial services
Real estate
Production and supply of power, heat,
gas and water
Water, environment and public utilities
management
Mining
Construction
Finance
3.50%
Accommodation and catering
0.68%
6.67%
13.93%
3.41%
17.06%
Water, environment and public utilities
management
4.01%
Mining
4.24%
6.74%
Construction
Science-education-culture-health
0.04%
8.65%
Retail and wholesale
Finance
1.78%
0.91%
Others
8.76%
Production and supply of power, heat,
gas and water
4.41%
Science-education-culture-health
Telecommunications, computer services
and software
9.10%
4.81%
7.45%
Leasing and commercial services
Real estate
7.95%
Retail and wholesale
Transportation, logistics and postal
services
0.43%
1.24%
Accommodation and catering
0.29%
Telecommunications, computer
services and software
0.44%
Others
7.51%
Note: Other include loans from Public management, social securities and social organisation sector, as well as agriculture, forestry, farming, fishing industry.
Banking Newsletter
PwC
April 2015
25
NPL on the rise as credit risk exposure
accelerated
The major Listed Banks’ credit asset quality
continued to deteriorate in 2014, with NPL
balance increasing and NPL ratios also rising.
The NPL balances of the Major Listed Banks
reached RMB 641.51 bn by the end of 2014,
representing an increase of 38.23% from the end
of 2013.
Graph26 Change in NPL ratios
NPL balances for the 5 LCBs stood at RMB 506.15
bn, up by 35.22%. For the 7 JSCBs the figure was
RMB 135.36 bn, an increase of 50.78%.
CCB
1.2% ICBC
NPL ratios for the Major Listed Bank rose by 0.24
ppts to 1.23%, which is a clear sign of further
exposure to credit risk.
1.0%
1.6%
ABC
1.4%
CITIC
BOCOM
CEB
BOC
CMB
HXB
SPDB CMBC
PAB
0.8%
0.6%
2014
2013
Graph 27 Change in NPL balance, LCB vs JSCBs
5 LCBs
7 JSCBs
NPL balance (In billions)
Growth
140
45%
120
40%
35%
100
30%
80
25%
20%
60
15%
40
10%
20
5%
0
0%
ICBC
CCB
2014
Banking Newsletter
PwC
ABC
BOC
2013
BOCOM
Growth
Growth
NPL balance(In billions)
30
70%
25
60%
50%
20
40%
15
30%
10
20%
5
10%
0
0%
CMB SPDB CITIC CMSB CEB
2014
2013
PAB
HXB
Growth
April 2015
26
Credit risk spreading to the western regions
Nine out of 12 Major Listed Banks disclosed NPL
breakdown by geographical regions in 2014, with
the Yangtze River Delta and Bohai Rim being the
most troublesome area (see Graph 28). It is
alarming that credit risk has been spreading to
the west as NPL balance increased significantly in
that region.
Graph28 NPL by region in 2014
Growth
NPL balance(In billions)
180
80%
160
140
60%
120
Graph 29 shows that credit asset quality
deteriorated most significantly in the West and
Yangtze River Delta region.
100
40%
80
60
20%
40
The growth in NPL balances in these regions were
the highest, with NPL growth in the West being
77.78%.
20
-
0%
NPL balance
Y-o-Y growth
Note: BOCOM, SPDB and HXB do not disclose NPLs by region.
Graph 29 Credit risk of Major Listed Banks (NPL％ as benchmark)
2013
2014
Northeast
Northeast
Bohai Rim
Bohai Rim
West
West
Yangtze River Delta
Central
Risk is spreading
Central
Yangtze
River Delta
NPL ratio as presented in the map
Pearl River
Delta
Below 1.00%
1.10%-1.20%
Hainan
Pearl River Delta
Hainan
1.20%-1.40%
1.40%-1.50%
Above 1.50%
Banking Newsletter
PwC
April 2015
27
NPL risk concentrated in mining, leasing &
business services, wholesale & retail sectors
By industry, Major Listed Banks’ NPLs were
concentrated in manufacturing, wholesale and
retail sectors (see Graph 30) in 2014, with an
increase of 32.02% and 54.59% respectively.
NPL balances in the construction sector also
increased significantly (69.31%). Yet its base was
low as well.
The mining sector recorded most significant
increase (410.06%) in NPL balances due to the
slump of international commodity price in 2014,
although the sector’s total NPL base was very low
comparatively.
On the other hand, NPL balances for
transportation, storage and postal services, and
electric power, gas and water production and
supply sectors decreased in 2014.
NPL balances in the leasing and business
services sector increased dramatically (92.64%)
too, as the deterioration in commercial property
markets and business environment for tenants
became severe.
Graph 30 Corporate NPLs by industry in 2014
4.04%
2.79%
2.70%
2.58%
2.06%
1.00%
0.78%
0.77% 0.58%
0.66% 0.55%
0.61%
0.48% 0.35% 0.45%
0.17% 0.51% 0.51%
2014
2013
Note: BOCOM and HXB did not disclose NPL breakdown by industries.
Banking Newsletter
PwC
April 2015
28
Overdue loans increased significantly
As credit risk rises significantly, overdue loan
balance for Major Listed Banks increased by
65.12% in 2014, to RMB 1.05 tn (see Graph 31);
overdue loan ratio rose to 2.00%.
Loans that are overdue but not classified as NPLs
for Major Listed Banks increased at a much faster
pace than that of NPLs, at a rate of 112.65%,
causing to a balance of RMB 447.2 bn.
As credit asset quality continues to deteriorate,
the amount of loans that are overdue increases as
well as the amount of overdue loans that
eventually become NPLs.
Graph 31 Overdue loans and NPLs the of Major Listed Banks
In billions
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
0
2010
-100
2011
Overdue
Overdue but not NPL
Banking Newsletter
PwC
2012
2013
2014
Growth
120%
110%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
-10%
NPL
Overdue but not NPL growth
April 2015
29
Credit cost have risen along with provision
level dropped
Major Listed Banks increased their provisions in
2014 in response to rising credit risk, with most
banks’ credit costs also rising (see Graph 32). The
trend was more evident for the 7 JSCBs.
Loan loss reserves (LLR) coverage ratio (or
“provision coverage ratio”, see Graph 33) for
Major Listed Banks was 220.54% by the end of
2014, down 51.29 ppts compared to 2013,
although their actual provision amount has
increased. LLR coverage ratio for 5 LCBs fell by
52 ppts, while that of 7 JSCBs’ dropped by 46 ppts.
Graph 32 Credit costs of Major Listed Banks
1.4%
1.33%
1.15% 1.18%
1.07%
1.2%
1.0%
0.85%
0.81%
0.8%
0.79%
0.66%
0.58%
0.66%
0.6%
0.59%
0.4%
LLR to total Loans, another ratio that measures
banks preparedness to deal with NPLs (see Graph
34) remained broadly the same in 2014 for Major
Listed Banks, with the 5 LCBs’ ratio dropping to
2.80% and 7 the JSCBs’ rising to 2.39%.
0.22%
0.2%
0.0%
2014
Graph 33 LLR coverage ratio
Graph 34 LLR/total loan ratio
400%
5.00%
4.5%
4.50%
300%
4.00%
286.53%
249.09%
222.33%
206.90%
200%
2013
233.13%
233.42%
187.60%
178.88%
200.90%
181.26%
182.20%
180.52%
3.50%
3.00%
2.50% 2.4%
2.00%
2.7%
2.7%
2.4%
2.2%
2.2%
2.2%
2.1%
2.1%
2.2%
1.8%
1.50%
100%
1.00%
0.50%
0%
0.00%
2014
Banking Newsletter
PwC
2013
2014
2013
April 2015
30
NPL write-offs increased
Major Listed Banks’ NPL write-offs and transfers
have continued to grow since 2012. In 2014，
Major Listed Banks increased their NPL
disposals, with write-offs and transfers amount
totaling RMB 219.2 bn, which is 2.2 in the
amount in 2013.
As the economy slowed, the disposals were not
sufficient to cover the NPL increase (see Graph
35 and 36).
The Ministry of Finance (MoF) published “Bad
debt write-offs measures for the management of
financial enterprises” in 2014, encouraging
financial institutions to increase bad debt writeoffs by easing standards.
Graph 35 Write-offs, transfers & NPL net growth
In billions
400
300
200
100
0
2010
2011
2012
2013
2014
-100
Write-offs and transfers
NPL net growth amount
Graph 36 LLR to overdue loans & LLR to NPLs, LCBs vs JSCBs
7 JSCBs
5 LCBs
350%
400%
300%
300%
250%
200%
200%
150%
100%
100%
50%
0%
2010
2011
LLR/Overdue
Banking Newsletter
PwC
2012
2013
LLR/NPL
2014
0%
2010
2011
LLR/Overdue
2012
2013
2014
LLR/NPL
April 2015
31
Investment growth accelerated
At the end of 2014, the investment balances for
the Major Listed Banks amounted to RMB19.53
tn, an increase of 16.52% compared to 2013.
Analysis of the investment portfolio suggested
over 80% of the 5 LCBs’ book were bonds, with
other instruments accounting for only a small
portion. Although the 5 LCBs have increased the
proportion of non-bond holdings in 2014.
accounted for over 30% of their investment
portfolio.
The 7 JSCBs accrued provision of debt
instruments classified as receivables in 2014. The
impairment loss ratios are summarised in table 2.
Table 2 Impairment loss ratio of receivables
The 7 JSCBs have seen a wider range of
instruments in their investment books, with all of
them increased the trust beneficiary right
products and asset management schemes
investments in 2014, which added up to RMB
3.06 tn, up by 106.41%. The proportion of such
instruments in investments rose by 16.51 ppts in
2014 compared to 2013.
In2014, the 7 JSCBs’ non-bond investments
Year
CMB SPDB CITIC CMBC CEB
PAB
HXB
2014 0.02% 0.44% 0.02% 0.45% 0.06% 0.14% 0.53%
2013 0.03% 0.46% 0%
0%
0%
0%
0%
Note: The calculation of impairment loss ratio includes beneficiary
rights of trust products, asset management schemes investment
and others.
Graph 37 Comparison of the investment structures of Major Listed Banks
In trillions
4.5
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
ICBC
CCB
ABC
BOC
BOCOM
2014
2013
% of bond investment 2014
In trillions
1.4
120%
1.2
100%
1.0
80%
0.8
60%
0.6
40%
0.4
20%
0.2
0.0
0%
CMB SPDB CITIC CMBC CEB PAB HXB
2014
2013
Note：Investment includes available-for-sale assets, held-to-maturity assets and debt instruments classified as receivables.
Banking Newsletter
PwC
April 2015
32
Growth in liabilities slowed
At the end of 2014, total liabilities of the Major
Listed Banks amounted to RMB 91.72 tn, an
increase of 10%. The liabilities of the 5 LCBs
increased by 8.22%, while those of the 7 JSCBs
grew by 15.90%.
Graph 38 Change in liabilities mix
6.09% 5.98%
12.15% 10.46%
From 2009 to 2014, the growth in liabilities for
Major Listed Banks has shown a slowing trend
(see Graph 39).
2014
3.31%
22.62% 22.48%
80.19% 82.18%
The liabilities mix for the Major Listed Banks
remained broadly stable, with the proportion of
deposits holding around 80% of the total for the 5
LCBs and 70% for the 7 JSCBs respectively, both
showing a declining trend in growth (see Graph
38).
The Major Listed Banks adjusted their liabilities
structures in 2014 according to liquidity needs,
with their balances of inter-bank liabilities and
borrowings from central banks increasing.
3.66%
71.26% 72.55%
2013
2014
5 LCBs
2013
7 JSCBs
Others
Bonds payable
Inter-bank liabilities & borrowings from central bank
Deposits
Note: Others include financial liabilities at fair value through profit
or loss, derivativefinancial liabilities.
Graph 39 Liabilities growth, LCB vs JSCBs
5 LCBs
In trillions
Growth
90
80
30%
25
25.36%
25%
70
7 JSCBs
In trillions
35%
30.83%
30%
20
24.60%
22.56%
60
Growth
23.31%
25%
20%
14.96%
50
15
13.83%
11.86%
40
15.90%
15%
9.31%
30
12.94%
10
8.22%
15%
10%
20
5%
10%
5
5%
10
0
0%
2009
2010
2011
2012
Total liabilities
Banking Newsletter
PwC
2013
2014
Growth
20%
0
0%
2009
2010
2011
2012
Total liabilities
2013
2014
Growth
April 2015
33
Deposits growth slowed, loan to deposit
ratio rise for LCBs
Deposit growth for most Major Listed Banks
slowed in 2014 (see Graph 40), as the impact
caused by wealth management products and
internet-based financial products and services
providers became evident. The “deposit deviation”
indicator introduced by regulators in September
2014 has also restricted banks’ aggressive deposit
taking activities at the end of each quarter.
As a result, the loan-to-deposit ratio (L/D ratio)
of the 5 LCBs went up in 2014 (see Graph 41) ,
while the ratio for the 7 JSCBs fell.
Graph 41 Change in loan-to-deposit ratios
Graph 40 Change in deposit growth
30%
78%
PAB
25%
75%
CMB
20%
CITIC
15%
10%
5%
ICBC
BOC
ABC
SPDB
BOCOM SPDB
CITIC
BOC
CEB
72%
CEB
CMBC
HXB
CMB
69%
CMBC
HXB
66%
ICBC
CCB
PAB
63%
0%
BOCOM
-5%
2014
Banking Newsletter
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CCB
60%
2013
ABC
2014
2013
April 2015
34
WMPs issuance presented divergent trends
In 2014, the growth of wealth management
products (WMPs) balances for Major Listed
Banks presented divergent trends (see Graph 42),
with most consolidated WMPs (with principal
guaranteed) continuing to expand.
in accordance with their investment preferences
and risk appetites.
With the rapid development of internet-based
financial services, most WMPs issued by Major
Listed Banks have been extended to online
distribution channels in 2014. As a result, bank
liquidity management has been increasingly
challenged by wide-spread use of information
technology, more flexible payment as well as
changing customer demands for higher yields.
Yet principal-guaranteed WMPs of some banks’
experienced a slow or even negative growth. This
was due to a proactive management of such
issuance due to concerns on high funding costs.
At the end of 2014, the volume of unconsolidated
WMPs (with principal not guaranteed) for Major
Listed Banks increased by 50.
Major Listed Banks have been launching WMPs
based on net asset values in 2014, with some
banks developing structured WMPs with highyield. This divergent trend suggested that banks
have been differentiating their WMPs issuances
Graph 42 Change of wealth management products balance for Major Listed Banks
In billions
600
Growth
Consolidated (principal guaranteed )
500
In billions
300%
1,600
Growth
Unconsolidated (principal not guaranteed )
160%
1,400
140%
1,200
120%
1,000
100%
250%
400
200%
300
150%
200
100%
100
50%
-
0%
(100)
800
80%
600
60%
400
40%
200
20%
-
0%
-50%
2014
2013
Growth
2014
2013
Growth
Note: No disclosure of consolidated data from BOC in 2014 & 2013.
Banking Newsletter
PwC
April 2015
35
Capital adequacy ratio (CAR) improved
In April 2014, the CBRC gave the green light for
the implementation of the Advanced Approach of
Capital Management (the “advanced approach”)
to ICBC, CCB, ABC, BOC,BOCOM and CMB.
During the parallel period, those banks are
supposed to comply with both the advanced
approach as well as the regulatory requirements
of other approaches (those adopted for the period
ended 31 December 2013), and meet the
minimum capital requirements.
In 2014, Capital Adequacy Ratios (CAR) for
Major Listed Banks improved. The 5 LCBs and
CMB’s CAR rose markedly.
Degree of risk represents the ratio of riskweighted assets to on and off -balance sheet
assets. High degree of risk suggests banks have
been taking high risks.
Degree of risk can be affected by following factors:
•
Coverage of internal rating based (IRB)
approach: Under the circumstances where
bank’s assets are high-quality, higher coverage
can save more capital.
•
Probability of Default (PD): PD is
determined by the rating of the counterparty. The
lower the PD, the better the counterparty’s quality
and the less capital consumed.
•
Loss on Given Default (LGD): LGD
reflects the effects of qualified risk mitigation.
The more qualified risk mitigation, the lower
LGD and less capital consumed.
To sum up, banks can improve capital
management by utilising the IRB approach,
selecting counterparties with high quality, and
adding qualified risk mitigations.
Graph 43 Capital adequacy ratios
Graph 44 Degree of risks for selected banks
16%
60%
15%
14%
13%
CCB
ICBC
ABC
BOC BOCOM
55%
ABC*
CMB*
12%
CITIC
SPDB
11%
CEB
CMSB PAB
HXB
ICBC
BOC
CCB
50%
BOCOM
CMB
45%
10%
9%
2014
2013
Note: ICBC, CCB, ABC, BOC and CMB’s were calculated under
the advanced approach.
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40%
Degree of risk = risk-weighted assets without capital floor and
adjustments / Total assets, with figures shown above
April 2015
36
Risk components in advanced approach offer
new risk identification perspectives
As of 31 December 2014, ABC and BOCOM’s IRB
approach coverage ratio for credit risk had
increased considerably compared to 30 June
2014, while ICBC, CCB, BOC, and CMB’s
remained almost the same.
The application of the advanced approach not
only make banks’ CAR measurements more
detailed and accurate, but also provides
meaningful risk components that can be used in
risk warnings, credit risk exposure identifications
and pricing.
Conventional assets quality indicators such as
NPL ratios and overdue loan ratios can only
expose credit quality and losses from defaults in
the current period. Yet PD is a leading indicator
that might reflect the probability of counter-party
default risk in the future.
Graph 45 IRB approach coverage ratio for credit risk
In the process of credit management and risk
monitoring, banks should look at NPL ratios,
overdue loan ratios and PD from present and
future perspective to manage existing risk and
anticipate potential risks. Banks can also analyse
these ratios from different angles, i.e. by region,
industry and other categories to project potential
default risk.
PD was disclosed in 2014 for the first time. The
scope and format of the disclosure were premature and inconsistent among banks. With
more comparable data from the use of the
advanced approach in future and the convergence
of banks’ disclosure scopes and formats, PD is
expected to be a significant indicator in analysis.
Table 3 Disclosure information illustration
70%
ABC
60%
NPL
ratio
Overdue
loan ratio
Probability of
default (PD)
ICBC
1.13%
1.91%
2.59%
CCB
1.19%
1.41%
2.44%
ABC
1.54%
2.10%
2.24%
BOC
1.18%
1.48%
2.60%
BOC
OM
1.25%
2.37%
3.42%
CMB
CCB
BOCOM
BOC
50%
Bank
ICBC
40%
30%
31 December 2014
30 June 2014
Note: Data of Probability of Default (PD) was gathered from 2014
Capital Adequacy Ratios Report of each bank and has been
weighted by total exposure.
Banking Newsletter
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April 2015
37
Banks’ innovative capital instruments
issuance arrangements in 2015
Major Listed Banks have planned to issue innovative capital instruments in 2015 to strengthen their
capital base, including issuing preference shares and sub-ordinary debts. Below is a summary of banks
issuing arrangements:
Table 4
Bank
Major Listed Banks’ innovative capital instruments issuance plan in 2015
Capital instruments issuance plan(s)
ICBC
Proposed to issue 450m preference
shares in domestic market
CCB
Proposed to issue preference shares both
in domestic and overseas markets
ABC
BOC
Proceeds（In RMB）
Up to 45bn
Status
Approved by regulatory
bodies in March 2015
Pending approval of
Domestic: up to 60bn
shareholders meeting and
Overseas: up to 20bn
regulatory bodies
Up to 40bn
Issued in March 2015
Up to 28bn
BOCOM
Up to 45bn
Pending approval of
regulatory bodies
SPDB
Up to 15bn
CITIC
CMBC
Proposed to issue RMB 20bn Tier 2
capital bonds
CEB
PAB
HXB
Proposed to issue up to 300m preference
shares
Up to 30bn
Approved by of shareholders
meeting in December 2014
Pending approval of
Preference shares: up to
20bn
regulatory bodies, to issue
shares and 1.07m of ordinary A shares
Ordinary shares: up to
1.07m ordinary shares in
10bn
2015
Pending approval of
Proposed to issue up to 200m preference
Up to 20bn
shares
regulatory bodies
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Pending approval of
regulatory bodies
Preference shares:
Pending approval of
Preference shares: Up to
20bn
regulatory bodies;
Tier 2 capital bonds:
Approved in April 2015 by
Up to 20bn
regulatory bodies to issue Tier
2 capital bonds
Up to 35bn
April 2015
38
3. Highlights
•
Banks’ responses to digital disruption: an overview
•
Getting prepared for the new impairment model
•
Potential revisions of the Standardised Approach is are challenging
banks’ operations
•
Why does ongoing disclosure matter for ABS?
•
How should banks deal with the replacement of business tax with value
added tax?
Banking Newsletter
PwC
April 2015
39
Banks’ responses to digital disruptions:
an overview
The collaboration between Alibaba and Tianhong Asset Management disrupted China’s
wealth management markets in 2013, as their “Yuebao” product (money market funds
sold on third party payment channel) attracted billions of funds in just a few days. The
disruptions were so significant that 2013 was referred as the genesis of internet based
financial products and services (internet finance). In 2014 Chinese banks responded to
these challenges by building their own internet financial services platforms. This article
is trying to look into those responses from six business segments that are regarded as
the most common forms of internet finance.
Being disrupted in every way
The six most common forms of internet finance
include: third-party payment, online P2P (peerto-peer) lending, big data finance (internet based
micro financing), crowdfunding, innovative
online financial services and web-based direct
sales (see Graph 46). These segments have been
disrupting banks’ businesses in every way.
For instance, the third-party payment business
has been eroding banks’ fee income in settlement,
clearing and other areas. Online P2P lending
service providers aimed at SMEs, together with
crowdfunding and wealth management products
sold online, have also been diverting banks’
deposit base. This is because they offer higher
yields than bank deposits.
traditional financial institutions. They have
helped stimulate household consumption,
encouraged financial innovation and promoted
market based reforms. The industry is expected
to see a deeper integration with these
technologies.
Large banks: adapt and change proactively
It is encouraging that most banks in China have
been responding to technological disruptions
Graph 46 Six common types of internet finance
Third party payment
Crowdfunding
Globally speaking, information technologies have
been disrupting businesses in many industries
other than financial services in recent decades.
These include retail, catering, tourism and
transportation, among others. Most of those
industries who embraced technological change
have seen their prices and costs fall, while
improving customer experience and their
efficiency of response to customer demands
Information technologies have played an
important role in China’s financial services
industry by improving the efficiency of fund
allocation and filling in the financing gap left by
Online P2P lending
Internet
Finance
@
Big data finance
Innovative
online financial
services
Web-based direct banking
Banking Newsletter
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April 2015
40
proactively, although they still largely enjoy a
dominant role. Most banks have been adapting
and changing while building their own internet
financial services platforms.
ICBC, the largest and most profitable bank in the
world, launched its e-ICBC strategy in March
2015 in Beijing, showcasing the bank’s ambitions
in internet-based finance.
The products and services ICBC launched cover
five major functions ranging from fundraising
and finance to trade, commerce and information.
They include ‘e-mall’ , social networking and
direct banking platforms, along with payment
and financing services.
According to Mr. Jiang Jianqin, the Chairman of
the bank, the real challenges the in internet era
do not arise from new market entrants, but from
banks’ adaptability to the new environment and
changing customer needs. Banks need to
embrace technological change with innovation
and passion.
Linking IT with niche
ABC is another bank that is responding to these
changes. It has done so by integrating
information technologies with its niche on rural
business.
The bank set up an internet-based financial
innovation laboratory as early as June 2013 to
explore opportunities in this area. An internetbased financial service promotion office was set
up in March 2014 to strengthen implementation
of the bank’s internet strategies.
In terms of payment, ABC leveraged on its
advantages on off-line customers and resources
in 2014 to establish mobile terminal payment offBanking Newsletter
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line customer base and resources to establish a
mobile terminal payment s system in 2014. This
proved particularly important in rural areas.
ABC has also launched pilot operations of a “data
internet loan” product. This innovative internet
financing product provides self-service credit
online based purely on transaction data.
In 2014, the bank launched “e-Commerce
Steward”, which integrates e-commerce
platforms with operation and management of
enterprises.
Joint-stock banks: eager to embrace
change
As well as the large commercial banks, most joint
stock commercial banks have also been
responding eagerly to changes.
Table 5 E-banking & mobile banking user numbers
Unit: millions
Listed
Banks
Personal
e-banking
Corporate
e-banking
Mobile
banking
ICBC
CCB
ABC
BOC
Not disclosed
3.30
3.19
2.60
CMB
SPDB
CITIC
CMBC
CEB
PAB
180.00
178.69
135.00
112.50
Not
disclosed
18.63
12.00
13.91
11.61
15.38
7.34
0.54
Not disclosed
Not disclosed
0.49
Not disclosed
Not disclosed
140.00
146.79
111.00
64.60
Not
disclosed
23.68
6.64
6.45
13.02
12.58
5.40
HXB
3.15
0.16
1.59
BOCOM
Not disclosed
April 2015
41
CITIC has been embracing information
technologies by promoting a balanced, two-way
development: namely “internet-based financial
services” with “finance-based internet business”.
Through internet-based financial services, the
bank reinforced its efforts to integrate various echannels and promote an e-channel “Express
Way” for optimal customer experience and
satisfaction. As part of its finance-based internet
business, the bank launched its “Cyber Payment”
mobile app. This is a fully online public platform
providing cross-border foreign exchange
payments.
Online financing has been supported by
optimising internet lending to traders with POS
terminals. “Huitongda” online business lending
provides supply chain finance and based on
agency payroll payment data, and personal credit
based on payment of contribution to the public
housing reserve.
PAB strengthened its internet-based financial
services by rolling out innovative products and
service platforms such as “Orange-e-Net”, “Hang
E-Tong version 2.0”, “Gold Banking” and “Pocket
Banking” (a mobile financial services platform
including debit and credit cards, wealth
management, mobile payment and other mobile
services.
As well as the names mentioned above, other
banks have been building or preparing their own
Business to Business (B2B) and Business to
Consumer (B2C) e-commerce platforms and
online lending platforms with the assistance of
big data. Payment platform are targeted at
individual and corporate’s diversified needs. A
new competitive space is developing quickly.
Table 6 Major Listed Banks’ presence in different types of internet-based financial services
E-commerce
Online
payment
Innovative
platform
Internet based
micro financing
Mobile
banking
Web-based
direct banking
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
ICBC
CCB
ABC
BOC
BOCOM
√
√
√
√
√
CMB
√
√
√
√
√
√
SPDB
√
√
√
√
CITIC
√
√
√
√
√
CMBC
√
√
√
√
√
CEB
√
√
√
√
√
PAB
HXB
√
√
√
√
√
√
√
√
√
Banking Newsletter
PwC
√
√
√
April 2015
42
Getting prepared
for the new impairment model
In 2014 the International Accounting Standards Board (IASB) finally published the
complete version of International Financial Reporting Standards No.9 (IFRS 9),
representing the accomplishment of a prolonged and difficult programme to improve
the standards of financial instruments since 2008. IFRS 9 will be effective for annual
periods beginning on or after 1 January 2018, and the changes are likely to have a
significant impact on entities that have significant financial assets and in particular
financial institutions. Considering the continuing convergence of the China Accounting
Standards (CAS) and the IFRS, this new standard will have an impact on the
amendments and implementation of CAS. This section will focus on the impairment of
the financial instruments and discuss the challenges of the implementation of the
expected loss model, as well as the importance of getting prepared.
The key changes of IFRS 9
This new standard includes amended guidance
for the classification and measurement of
financial instruments. Classification for
investments in debt instruments is driven by the
entity’s business model for managing financial
assets and their contractual cash flow
characteristics. Investments in equity
instruments are always measured at fair value.
New guidance is also provided for financial
liabilities at fair value through profit or loss.
This new standard also introduces a new
impairment model —— the expected credit loss
model. The new standard outlines a ‘three-stage’
model for impairment based on changes in credit
quality since initial recognition. Assets move in
the three stages based on changes of the credit
quality, and there is a different way to measure
impairment loss and use the effective interest
rate (see next page).
•
•
Stage 2 includes financial instruments that
have had a significant increase in credit risk
since initial recognition (unless they have
low credit risk at the reporting date) but that
do not have objective evidence of
impairment. For these assets, lifetime ECL
are recognised, but interest revenue is still
calculated on the gross carrying amount of
the asset.
•
Stage 3 includes financial assets that have
objective evidence of impairment at the
reporting date. For these assets, lifetime
ECL are recognised and interest revenue is
calculated on the net carrying amount (that
is, net of credit allowance).
Stage 1 includes financial instruments that
have not had a significant increase in credit
risk since initial recognition or that have low
credit risk at the reporting date. For these
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assets, 12-month expected credit losses
(‘ECL’) are recognised and interest revenue
is calculated on the gross carrying amount of
the asset (that is, without deduction for
credit allowance).
April 2015
43
Graph 47
Illustration of the 3 stages for expected credit loss impairment model
Change in the credit risk since initial recognition
Recognition of expected credit losses
12-month expected credit losses
Lifetime expected credit losses
Lifetime expected credit losses
Interest revenue
Effective interest on gross
carrying amount
Effective interest on gross
carrying amount
Effective interest on amortised cost
carrying amount（that is, net of
credit allowance)
Stage 1
Stage 2
Stage 3
Performing
（Initial recognition）
Underperforming
（Assets with significant increase in
credit risk since initial recognition）
Non-performing
（Credit-impaired assets）
The standard requires management, when
determining whether the credit risk on a financial
instrument has increased significantly, to
consider reasonable and supportable overview of
the model information available, in order to
compare the risk of a default occurring at the
reporting date with the risk of a default occurring
at initial recognition of the financial instrument.
IFRS 9 introduces significant additional
disclosure requirements relating to credit risk
and expected credit loss allowances.
Understanding the required data and systems for
all these needs will therefore be critical to
ensuring the completeness of IFRS 9 project
scopes and avoiding revisions later in the project
that could be costly and jeopardise project
timings.
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This standard will be very challenging to apply, in
particular for financial institutions.
Currently, most entities do not collect the
amount of credit information required by the
standard. Entities will need to significantly
modify their current credit and information
systems in order to gather the required
information.
Management will need to build new models to
determine both 12-month and lifetime ECL. This
will require complex judgements (for example,
definition of default, definition of low credit risk
and behavioural life of revolving credit facilities).
It is expected that the implementation process
will require a significant amount of time before
an entity will be in a position to comply with the
requirements of the standard.
April 2015
44
Basel Committee guidance on accounting
for expected credit losses
the highest-quality implementation of an ECL
accounting framework.
On 2 February 2015 the Basel Committee issued
for consultation ‘Guidance on accounting for
expected credit losses’. The guidance will impact
banks implementing IFRS 9 and is designed to
drive consistent interpretations and practice. The
consultation period ends on 30 April 2015.
Timetable
While ECL accounting frameworks are new and
different from current accounting frameworks
and their implementation will require an
investment in both resources and system
developments/upgrades, standard setters have
given or are expected to give firms a considerable
time period to transition to the updated
accounting requirements. On that basis, the
Committee has significantly heightened
supervisory expectations that internationally
active banks - and those banks that are more
sophisticated in the business of lending will have
Graph 48
The implementation of IFRS 9 will be
accomplished systematically, especially for the
implementation of the new ECL model.
Coordination among various functions is
necessary for accounting, risk management, IT
system and data management departments. It
will remain necessary throughout the whole
process: from the study of the new standard and
sorting out the data request needed, to
identifying gaps in the current information and
system, and pilot running of the new system to
the final implementation.
Therefore, as illustrated in the chart on the next
page, the effective deadline of 2018 is very tight.
Financial institutions should start to prepare for
this as soon as possible.
Timetable for IFRS 9 implementation
2014.7
2016
2018.1.1
IASB published the
complete version of
IFRS 9
PRC publish the
related accounting
standard (expected)
effective for annual
periods beginning
on or after 1
January 2018
2014
Banking Newsletter
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2015
2016
2017
2018
2015
2015-2016
2017.1.1
2018 .Q1
Set the objectives,
project mobilisation,
model development
and quality check of
data
Model verfication
Parallel
implementation
Consider the reports
to be published and
restatement
April 2015
45
Potential revisions of the Standardised
Approach are challenging banks’ operations
Final standards expected to be unveiled by
2015 year-end
standards are expected to be issued by the end of
2015.
In its report to the G20 in November 2014, the
Basel Committee pointed out that there are
material variances in banks’ regulatory capital
ratios that arise from factors other than
differences in the riskiness of banks’ portfolios.
The Committee pledged to reduce the level of
observed variation in capital ratios across banks,
by reviewing and revising policies and
approaches, strengthening disclosure
requirements, and monitoring outcomes of riskweighted asset variability.
Among these revised standards, the new
Standardised Approach for Credit Risk may have
the most significant impact on banks. Besides its
evident impact on the practices and capital
requirements of banks under standardised
approach, the new SA approach will also
influence the regulatory capital requirements of
the banks under the IRB approach through
capital floor, though the extent of the influence
will largely depends on the final design and
calibration of the capital floor.
Recently, the Committee has been collecting
comments for standardised approach for credit
risk, market risk and operational risk, as well as
the design of the new capital floor. The finalised
The table below summarises the weaknesses of
the current standardised approach for credit risk
and the principles and rationale for the revision.
Weaknesses of the current approach
Principles and rationale for the review
Over-reliance on external credit ratings
Keep the fundamental concept of the current
framework
Reflect to a reasonable extent the risk of the
exposures and provide the correct incentives for
banks
Be simple and suitable for a wider range of
jurisdictions and banks
Reduce reliance on internal modelled approaches to
set capital charges
Reduce or remove, where possible, the reliance on
external ratings when setting capital charges
Definitions used in the standardised approach
should, to the extent possible, be harmonised with
those used in the IRB framework
Be justified by illustrating either the weaknesses or
the potential correction of a misalignment
Lack of granularity and risk sensitivity
Out-of-date calibrations
Excessive complexity and lack of clarity
w ithin the standards
Lack of comparability and misalignment of
treatment w ith exposures risk w eighted
under the IRB approach
Excessive complexity and lack of clarity
w ithin the standards
Banking Newsletter
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April 2015
46
Graph 49
Key Contents of “Revisions to the Standardised Approach for credit risk (Consultative Document)”
In determining the risk weight, the
Committee aims to remove both references
to external credit ratings and the link to a
sovereign’s credit rating, and seeks to
develop a single approach based on two
risk drivers that are relevant to banks:
capital adequacy and asset quality. The
risk weights will range from 30% to 300%.
The credit risk mitigation framework
would be amended by reducing the
number of approaches, recalibrating
supervisory haircuts, and updating
corporate guarantor eligibility criteria.
Exposures to
banks
Corporate exposures will no longer
be risk-weighted by referring to the
external credit rating, but will
instead by referring to a look-up
table where risk weights range from Exposures to
60% to 300% on the basis of two
corporates
risk drivers: revenue and leverage.
Further, risk sensitivity would be
increased by introducing specific
treatments for specialised lending.
The retail category would be
enhanced by tightening the criteria to
qualify for the 75% preferential risk
weight, and by introducing a fall back
subcategory for exposures that do
not meet the criteria.
Key Revisions
Exposures
secured by
commercial
real estate
Exposures
Exposure to
secured by
Retail
residential real
portfolio
estate
Implications: increase the sensitivity of
credit risk
According to the revised standardised approach,
the risk exposure to financial institutions will be
greatly increased in China, considering the
current average capital adequacy ratio and nonperforming loan rate of Chinese listed banks. The
higher capital requirements under the revised
standardised approach could bring large capital
advantages to banks under IRB.
From an business perspective, the revised
standardised approach will greatly increase the
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Credit risk
mitigation
Exposures secured by commercial
real estate are subject to further
consideration where two options
currently envisaged are: (a) treating
them as unsecured exposures, with a
national discretion for a preferential
risk weight under certain conditions;
or (b) determining the risk weight
according to a look-up table where
risk weights range from 75% to 120%
on the basis of the loan-to-value ratio.
Exposures secured by residential real
estate would no longer receive a single
35% risk weight. Instead, risk weights
would be determined according to a
look-up table where risk weights range
from 25% to 100% on the basis of two
risk drivers: loan-to-value and debtservice coverage ratios.
risk sensitivity of exposures to corporates. Banks
need to monitor the RAROC of existing portfolio,
adjust current portfolio structures and guide
future business by utilizing tools such as capital
management and risk-based pricing. The
recalibrations of risk weights between different
asset classes will also affect the overall asset
portfolio allocation.
From an operational perspective, the
implementation of revised standardised
approach will bring challenges to banks’ current
operational models and information systems .
April 2015
47
Why does ongoing disclosure matter for ABS?
－Implications on the revisions of regulation AB in the US
China’s credit asset securitisation developed rapidly in 2014, with product issuance
totalling RMB 280 bn: 2.80 times the aggregate issuance from 2005 - 2013. It is expected
the issuance will continue its momentum in 2015 following the registration based
reform. This article aims to provide new market insights through an overview of
relevant regulation revisions in the US.
Background
1.
The US Securities and Exchange Commission
(SEC) specially enacted a set of regulations
named Regulation AB (Reg AB), in order to
govern the disclosure and reporting for assetbacked securities (ABS) in the US. The rules were
initially issued on 1 January 2006.
After the global financial crisis, with the
amendment of the Dodd-Frank Act, the SEC took
five years to amend Reg AB. The revisions went
into effect formally on 24 November 2014.
Each specific underlying asset required to be
disclosed in standardised data points;
2. Disclosure requirement of ABS offering
process, standard and prospectus;
3. Disclosure requirement of Asset-Backed
Issuer on an ongoing basis including ABS
issuer. Distribution Report on Form 10-D, the
annual report on Form 10-K, and Current
Report on Form 8-K.
1. Each specific underlying asset required
to be disclosed in standardised data points
Objective and content
The final rules are intended to provide investors
with transparent, timely and sufficient
information. They should enhance the investors’
confidence in ABS, reduce undue reliance on
credit ratings, and help issuers pare funding costs.
The rules cover the following areas:
The maximum revision the SEC made from the
2006 version of Reg AB requires disclosure for
six kinds of underlying asset: residential
mortgages, commercial mortgages, auto loans,
auto leases, debt securities or securitisations of
asset-backed securities. For each kind of
underlying assets, Reg AB set up standardised
data points in a range from 67 to 270 by which
the servicers are required to disclose. Such
Table 7 Disclosure required by Regulation
Frequency
Content
Periodic
Form 10D – periodic distribution and pool performance information (item 1121 of REG AB)
Form 8K – the occurrence of certain defined reportable events such as changing servicers,
etc.
(New) Form ABS-EE- asset data files and asset related documents
Annual
Form 10K - assessment of compliance (item 1122 & 1123 of REG AB)
Form 10K - attestation reports by registered public accounting firms, etc. (item 1122 &
1123 of REG AB)
Banking Newsletter
PwC
April 2015
48
disclosure is not only made in the prospectus
during the offering process but also in
distribution report on Form 10-D during the
ongoing period.
The new disclosure requirements are designed to
provide investors and other participants in the
securitisation market with data necessary to
analyse for each securitisation transaction, at the
time of inception and over the life of a security,
the characteristics of each asset, including the
collateral supporting each asset and the cash
flows derived from each asset in the transaction.
Schedule AL (§
229.1125) simply specifies the
disclosure requirements of residential mortgages
as an example. The key data points of other assets
is less than residential mortgages, however the
latitude and breadth of disclosure would launch a
major challenge for issuers’ systems. The
regulators also acknowledge that issuers need to
invest human and financial resources to meet
these disclosure requirements.
The SEC also considered carefully the privacy
issues of disclosing asset-level information and
indicated that it won’t lead to risk of re-
identification of the obligors and lessees
especially in MBS and auto ABS. In addition, the
finalised disclosure requirement of data points
has weighted the benefits and costs of
information for investor due diligence and
considered risk mitigation of disclosing sensitive
obligor data.
2. Securities Act Registration
The Regulation AB Final Rules adopt new
registration procedures, registration forms and
shelf eligibility requirements for asset-backed
security issuers. The new rules maintain the
fundamental framework of shelf registration for
delayed ABS offerings, but provide new and
important protections for investors who choose to
commit capital to the ABS transaction.
3. Continuous disclosure during ongoing
period
The SEC suggests that loan servicer’s disclosure
and independent public accountant’s attestation
during ABS ongoing period are the main aspects
of regulation. The requirements of ongoing
disclosure are shown in the following schedule.
Table 8 Product disclosure requirement, RMBS as an example
ABS Type
Key Data Points
RMBS
270
Key Disclosures
•
•
•
•
•
•
•
General information about the residential mortgage;
Information related to property;
Information related to the obligor;
Information related to mortgage insurance;
Information related to activity on the loan;
Information related to servicers;
Others: assets subject to demand, loans that have been charged
off, loan modifications, repayment plans, delinquent loans, etc.
Note: Above table is a summary of the regulation, please refer to 1125 Schedule AL of Regulation AB for details.
Banking Newsletter
PwC
April 2015
49
1) Distribution Reports on Form 10-D
Form 10-D contains periodic distribution and
pool performance information, and it is filed
within 15 days of each required distribution date
on the asset-backed securities. Disclosure of each
asset in the pool needs to meet the requirements
of part 1, which is a huge challenge to the
servicers for the disclosed reports’ time and
quality.
2) Annual Report of servicers on Form 10K
The Form 10-K report of an asset-backed issuer
mainly requires each servicer to provide an
Independent Compliance Statement which
declares its services in line with servicing
criteria including general service matters, cash
recycling and management, distribution,
information reporting and asset pool
management.
The compliance assessment should be based on
service platform-level rather than transactionlevel. The assessment should include all the
transactions that ABS servicers are responsible
for reporting. In addition to the assessment of
compliance with servicing criteria, the filing of
attestation reports by registered public
accounting firms on such assessment is required
to provide a certain level of assurance and
transparency regarding the servicer’s
performance.
Disclosure requirements of Annual Report on
Form 10-K
Independent Compliance
Statement of each servicer for their
due diligence (Section 1123)
An assessment of compliance with
servicing criteria by each party
participating in the servicing function
(Section 1123)
Sarbanes -Oxley Act 302
Authenticate provided by signatory of
annual report 10K
Independent Compliance Statement
declared by each servicer for servicing
criteria
Attestation reports of servicers’
statements by auditors
Conclusion
As the start of the filing and registration system for China's asset securitisation, sufficient and
effective issuing and ongoing disclosure of ABS is a crucial cycle to improve the sustainable and
orderly development of the market. The ongoing disclosure and servicer’s due diligence attestation
reports by registered public accounting firms proves valuable and beneficial to the development of
ABS market transparency and to efficiency in the long run.
Banking Newsletter
PwC
April 2015
50
How should banks deal with the replacement of
business tax with value added tax?
The replacement of business tax with value-added tax is a crucial part of a deepening tax
reform in China. In early 2015, the MoF and the State Administration of Taxation both
proposed to expand the reform to construction, properties, financial services and other
services. The Government Work Report delivered by Premier Li Keqiang emphasised
the reform should be completed by the end of the year. Due to the complexity of
business scope, tax structure and tax collection，financial industry reform is needed
urgently and will require much effort.
Background
The Chinese government piloted VAT in
Shanghai from 1 January, 2012. In 2013, the
scope of the pilot was extended to the whole
country and the pilot industries were broadened.
In 2014, railways, postal services and
telecommunications were included. Another
seven service industries have been included in
the scope of VAT.
According to statistics from the Ministry of
Finance, by the end of 2014 there were 4.1
million pilot VAT payers nationwide, and more
than 95% benefited from lower taxes. The total
tax saving was 89.8 billion yuan.
The MoF, the State Administration of Taxation
and the State Council clarified that the tax
departments would continue to expand the scope
of replacing business tax with VAT. In 2015, VAT
will be extended to construction, real estate,
financial services and life services.
Challenges in the banking industry
• Different businesses are taxed in different
ways, which makes streamlining business
more difficult. Due to diversification of
products in loan businesses, intermediary
businesses, financial products, and especially
cross-border businesses, tax preferences will
need to be identified and negotiated one by
one.
Compliance is the basis, while tax
efficiency is the target
• In order to meet VAT requirements, proper
training should be delivered and sufficient
human resources allocated, so that front line
employees can issue invoices properly and
purchasing departments can collect, file and
certify VAT invoices on a timely basis:
• Need to adjust account codes to meet the
recording of VAT;
• Analyse the bank’s performance in VAT
payment and deduction. Consider increasing
tax efficiency by using outsourcing services.
Complexity, a short timeline and
significant workload
(continues in next page)
• It is expected that business tax will be
replaced by VAT in the financial services
industry in June, 2015. The implementation
is expected from October 2015 at the earliest
and January 2016 at the latest.
Banking Newsletter
PwC
April 2015
51
Reassess the terms of business and
business strategy, put into use in daily
operation and make reference during
business negotiation
transfer from business tax to value-added
tax from a strategic point of view; adjust the
pricing with consideration of the
preferences of banks; manage the bank’s
portfolio by increasing exposure to certain
customers while decreasing others.
• Adjust the businesses and products based on
pricing strategy;
•
Smooth transition, understand
policies in depth, and prompt
compliance: According to the
requirements of VAT, increase and revise
the accounting policies and procedures of
the bank; amend contracts and provide
letters to suppliers and customers to
introduce the shift between business tax to
value-added tax; set up principles and
policies, including revision of the policies
and procedures over the management of
value-added tax and the user manual of
value-added tax invoices; revisit processes
and systems;
•
Figure out and solve issues, as well as
control risks: Implement formal follow-up
processes on tax declarations; establish
sound communication mechanisms with tax
authorities; track the issuance, acquisition
and certification of value-added tax invoices;
and evaluate the functions of systems.
• Choose the proper supplier, change the
contract terms and acquire the VAT invoice.
Preparation works of banks
Coordinate and cooperate within the
organisation:
• Deploy relevant staff, organise working groups
to coordinate the transition of business tax to
value-added tax , mobilise the branches;
• Clear work plans including objectives and
timetables, follow up the implementation of
working plans, and evaluate the outcomes.
Implementation step by step:
•
Figure out the current situations, gap
analyses, plan in advance: In terms of
the processes of IT system, recognise the key
areas in internal process and products that
need to improve; analyse the circumstances
of clients and suppliers, evaluate the
possibilities of transfer pricing on output
value-added tax and the reduction of costs;
assess the current structure and data of IT
system, recognise the areas that need to
transform;
•
Strategy analysis, long-term
projection and streamline of pricing:
Evaluate the ways and areas that the
profitability of the bank will be affected by
Banking Newsletter
PwC
April 2015
52
4. Appendix
•
Financial highlights of Major Listed Banks
•
Definitions
•
Graph index
•
Banking and Capital Markets Contacts
•
PwC Offices in China
Banking Newsletter
PwC
April 2015
53
Financial highlights of Major Listed Banks (I)
Large Commercial Banks (In RMB millions)
Operating Results in 2014
ICBC
CCB
ABC
BOC
BOCOM
5 LCBs Total
Operating income
658,892
570,470
520,858
456,331
177,401
2,383,952
Net interest income
493,522
437,398
429,891
321,102
134,776
1,816,689
Non-interest income
165,370
133,072
90,967
135,229
42,625
567,263
132,497
108,517
80,123
91,240
29,604
441,981
32,873
24,555
10,844
43,989
13,021
125,282
(299,280)
(273,223)
(289,914)
(225,412)
(93,559)
(1,181,388)
(41,351)
(34,983)
(28,880)
(26,224)
(12,822)
(144,260)
(176,261)
(159,825)
(179,992)
(130,387)
(53,045)
(699,510)
Allowance for impairment losses
(56,729)
(61,911)
(67,971)
(48,381)
(22,866)
(257,858)
Other business expenses
(24,939)
(16,504)
(13,071)
(20,420)
(4,826)
(79,760)
Operating profit
Profit before tax
359,612
361,612
297,247
299,086
230,944
232,257
230,919
231,478
83,842
84,927
1,202,564
1,209,360
Income tax expense
(85,326)
(70,839)
(52,747)
(54,280)
(18,892)
(282,084)
Net profit
Non-controlling interests
Profit attributable to shareholders
276,286
475
275,811
228,247
417
227,830
179,510
49
179,461
177,198
7,603
169,595
66,035
185
65,850
927,276
8,729
918,547
Net fee & commission income
Operating expenses
Business tax and surcharges
Business & administration expenses
Financial Position,
as of 31 December 2014
ICBC
CCB
ABC
BOC
BOCOM
5 LCBs Total
20,609,953
16,744,130
15,974,152
15,251,382
6,268,299
74,847,916
Loans and advances, net
10,768,750
9,222,910
7,739,996
8,294,744
3,354,787
39,381,187
Loans and advances
11,026,331
9,474,523
8,098,067
8,483,275
3,431,735
40,513,931
Total assets
Less: Allowance for impairment losses
257,581
251,613
358,071
188,531
76,948
1,132,744
4,433,237
3,727,869
3,575,630
2,710,375
1,162,876
15,609,987
Interbank assets
Cash & deposits with central bank
Others assets
Total liabilities
1,251,238
3,523,622
633,106
19,072,649
788,737
2,610,781
393,833
15,491,767
1,489,285
2,743,065
426,176
14,941,533
1,130,211
2,391,211
724,841
14,067,954
525,033
938,055
287,548
5,794,694
5,184,504
12,206,734
2,465,504
69,368,597
Deposits from customers
15,556,601
12,898,675
12,533,397
10,606,647
4,029,668
55,624,988
1,920,196
1,388,048
1,187,085
2,005,577
1,324,606
7,825,512
279,590
191,349
211,779
278,045
129,547
1,070,525
631
91,216
80,121
348,271
83,669
603,908
Other liabilities
Total owners’ equity
1,315,631
1,537,304
6,445
922,479
1,252,363
10,184
929,151
1,032,619
1,553
829,414
1,183,428
42,569
227,204
473,605
2,550
4,223,879
5,479,319
63,301
Total equity attributable to equity
shareholders
1,530,859
1,242,179
1,031,066
1,140,859
471,055
5,416,018
Investments
Interbank liabilities
Debt securities issued
Due to central bank
Banking Newsletter
PwC
April 2015
54
Financial highlights of Major Listed Banks (II)
Joint-stock Commercial Banks (In RMB millions)
Operating Results in 2014
SPDB
Operating income
165,863
123,181
124,716
135,469
78,531
73,407
54,885
756,052
Net interest income
112,000
98,183
94,741
92,136
58,259
53,046
46,241
554,606
Non-interest income
53,863
24,998
29,975
43,333
20,272
20,361
8,644
201,446
44,696
21,346
25,313
38,239
19,157
17,378
7,652
173,781
Net fee & commission income
CITIC
CMBC
CEB
PAB
7 JSCBs
Total
CMB
HXB
9,167
3,652
4,662
5,094
1,115
2,983
992
27,665
Operating expenses
(93,094)
(61,430)
(70,312)
(75,990)
(40,115)
(47,161)
(30,994)
(419,096)
Business tax and surcharges
(10,425)
(8,147)
(8,827)
(9,005)
(6,361)
(5,482)
(3,885)
(52,132)
Business & administration expenses
(50,656)
(28,475)
(37,812)
(45,077)
(23,416)
(26,668)
(20,622)
(232,726)
Allowance for impairment losses
(31,681)
(24,193)
(23,673)
(21,132)
(10,209)
(15,011)
(6,276)
(132,175)
(332)
(615)
-
(776)
(129)
-
(211)
(2,063)
Operating profit
72,769
61,751
54,404
59,479
38,416
26,246
23,891
336,956
Profit before tax
73,431
62,030
54,574
59,793
38,554
26,194
24,003
338,579
(17,382)
(14,670)
(13,120)
(14,226)
(9,626)
(6,392)
(5,980)
(81,396)
56,049
47,360
41,454
45,567
28,928
19,802
18,023
257,183
138
334
762
1,021
45
-
42
2,342
55,911
47,026
40,692
44,546
28,883
19,802
17,981
254,841
PAB
HXB
Other business expenses
Income tax expense
Net profit
Profit attributable to shareholders
Financial Position,
as of 31 December 2014
Total assets
CMB
SPDB
CITIC
CMBC
CEB
7 JSCBs
Total
4,731,829 4,195,924 4,138,815 4,015,136 2,737,010 2,186,459 1,851,628 23,856,801
Loans and advances, net
2,448,754 1,974,614 2,136,332 1,774,159 1,271,430 1,003,637
916,105 11,525,031
Loans and advances
2,513,919 2,028,380 2,187,908 1,812,666 1,299,455 1,024,734
939,989 11,807,051
Less: Allowance for impairment
losses
Investments
Interbank assets
Cash & deposits with central bank
Others assets
65,165
53,766
51,576
38,507
28,025
21,097
23,884
282,020
986,902 1,253,918 1,068,126
525,051
360,444
297,936
654,785
506,067
538,486
116,337
100,881
97,935
598,164
927,756
471,632
243,425
588,544
459,731
354,185
63,120
481,436
291,446
306,298
103,642
409,925
204,910
292,248
28,440
5,387,015
3,067,274
3,123,701
753,780
Total liabilities
4,416,769 3,932,639 3,871,469 3,767,380 2,557,527 2,055,510 1,749,529 22,350,823
Deposits from customers
Interbank liabilities
Debt securities issued
Due to central bank
Other liabilities
Total owners’ equity
3,304,438 2,724,004 2,849,574 2,428,112 1,785,337 1,533,183 1,303,216 15,927,864
859,039
892,869
749,549
975,010
595,703
421,570
367,180 4,860,920
84,864
61,395
122,321
129,279
85,491
41,750
23,839
548,939
20,000
50,050
30,040
21,006
50,745
2,754
20,058
194,653
148,428
233,365
99,975
184,234
60,956
56,253
35,236
818,447
315,060
263,285
267,346
247,756
179,483
130,949
102,099 1,505,978
Total equity attributable to equity
shareholders
Banking Newsletter
PwC
656
3,116
7,669
7,614
508
-
641
20,204
314,404
260,169
259,677
240,142
178,975
130,949
101,458
1,485,774
April 2015
55
Financial highlights of Major Listed Banks (III)
Financial Ratios for 2014
Profitability
Return on average total assets (ROA)
Return on weighted average equity (ROE)
Net Interest Spread (NIS)
Net Interest Margin (NIM)
Cost to income ratio
Income Mix
Net interest income
Non-interest income
Asset Quality
Non performing loan (NPL) balance, in millions
NPL ratio
Overdue loan balance, in millions
Overdue loan ratio
Impairment losses on loans, in millions
Credit cost
Allowance to total loans ratio
Provision coverage ratio
Capital Adequacy
Common Equity Tier 1 capital adequacy ratio
Tier 1 capital adequacy ratio
Capital adequacy ratio
Total equity to total assets ratio
Risk-weighted assets to total assets ratio
Financial Ratios for 2014
Profitability
Return on average total assets (ROA)
Return on weighted average equity (ROE)
Net Interest Spread (NIS)
Net Interest Margin (NIM)
Cost to income ratio
Income Mix
Net interest income
Non-interest income
Asset Quality
Non performing loan (NPL) balance, in millions
NPL ratio
Overdue loan balance, in millions
Overdue loan ratio
Impairment losses on loans, in millions
Credit cost
Allowance to total loans ratio
Provision coverage ratio
Capital Adequacy
Common Equity Tier 1 capital adequacy ratio
Tier 1 capital adequacy ratio
Capital adequacy ratio
Total equity to total assets ratio
Risk-weighted assets to total assets ratio
Banking Newsletter
PwC
ICBC
CCB
ABC
BOC
BOCOM
1.40%
19.96%
2.46%
2.66%
26.75%
1.42%
19.74%
2.61%
2.80%
28.85%
1.18%
19.57%
2.76%
2.92%
34.56%
1.22%
17.28%
2.12%
2.25%
28.57%
1.08%
14.87%
2.17%
2.36%
29.90%
74.90%
25.10%
20.11%
76.67%
23.33%
19.02%
82.54%
17.46%
15.38%
70.37%
29.63%
19.99%
75.97%
24.03%
16.69%
124,497
1.13%
210,578
1.91%
22,941
0.22%
2.34%
206.90%
113,171
1.19%
133,216
1.41%
59,264
0.66%
2.66%
222.33%
124,970
1.54%
166,620
2.06%
65,063
0.85%
4.42%
286.53%
100,494
1.18%
125,936
1.48%
46,606
0.58%
2.22%
187.60%
43,017
1.25%
81,247
2.37%
22,210
0.66%
2.24%
178.88%
11.92%
12.19%
14.53%
7.46%
60.53%
12.12%
12.12%
14.87%
7.48%
60.94%
9.09%
9.46%
12.82%
6.46%
67.94%
10.61%
11.35%
13.87%
7.76%
65.14%
11.30%
11.30%
14.04%
7.56%
66.44%
CMB
SPDB
CITIC
CMBC
CEB
PAB
HXB
1.28%
19.28%
2.33%
2.52%
30.54%
1.20%
21.02%
2.27%
2.50%
23.12%
1.07%
16.84%
2.19%
2.40%
30.32%
1.26%
20.41%
2.41%
2.59%
33.27%
1.12%
17.36%
2.06%
2.30%
29.82%
0.97%
16.35%
2.40%
2.57%
36.33%
1.02%
19.31%
2.52%
2.69%
37.57%
67.53%
32.47%
26.95%
79.71%
20.29%
17.33%
75.97%
24.03%
20.30%
68.01%
31.99%
28.23%
74.19%
25.81%
24.39%
72.26%
27.74%
23.67%
84.25%
15.75%
13.94%
27,917
1.11%
52,704
2.10%
31,254
1.33%
2.59%
233.42%
21,585
1.06%
38,725
1.91%
21,919
1.15%
2.65%
249.09%
28,454
1.30%
75,944
3.47%
22,074
1.07%
2.36%
181.26%
21,134
1.17%
49,686
2.74%
19,928
1.18%
2.12%
182.20%
15,525
1.19%
45,145
3.47%
9,981
0.81%
2.16%
180.52%
10,501
1.02%
45,995
4.49%
14,614
1.55%
2.06%
200.90%
10,245
1.09%
22,826
2.43%
5,225
0.59%
2.54%
233.13%
10.44%
10.44%
12.38%
6.66%
61.15%
8.61%
9.13%
11.33%
6.27%
68.37%
8.93%
8.99%
12.33%
6.46%
71.07%
8.58%
8.59%
10.69%
6.17%
71.30%
9.34%
9.34%
11.21%
6.56%
69.35%
8.64%
8.64%
10.86%
5.92%
61.87%
8.49%
8.49%
11.03%
5.51%
64.87%
April 2015
56
Definitions
Terms
Definition or formula
NPL balance
Refers to the sum of Substandard, doubtful and loss loans in accordance with 5-tier classification
NPL ratio
NPL balance / Total loans and advances to customers × 100%
Overdue loan balance
In case of one day overdue for any principal or interest, the whole loan is classified as overdue
Overdue loan ratio
Overdue loan balance / Total loans and advances to customers ×100%
Provision coverage) ratio
Allowance for impairment losses on loans / NPL balance ×100%
Return on average assets
(ROA)
Net profit / average balance of total assets × 100% × annualised coefficient
Return on weighted average
equity (ROE)
Net profit / average balance of the sum of owner's equity and minority's interest × 100% ×
annualised coefficient
Net interest margin (NIM)
Net interest income / average balance of interest-earning assets × 100% × annualised coefficient
Net interest spread (NIS)
Average yield of interest-earning assets - average cost of interest-bearing liabilities x annualised
coefficient
Non-interest income other than net fee and commission income, including net income from treasury
business, fair value gains and losses of financial assets, income from other businesses, etc.
Cost-to-income ratio
Business and administration expenses / operating income x 100%
Current ratio
Current assets / current liabilities × 100%
Loan to deposit ratio
Balance of loans / Balance of Deposits × 100%
Net capital base
Net capital base calculated as stipulated by the Capital Rules for Commercial Banks (Provisional)
and other regulations
Tier-1 capital after deductions
Tier-1 capital after deductions calculated as stipulated by the Capital Rules for Commercial Banks
(Provisional) and other regulations
Net core tier-1 capital
Net core tier-1 capital calculated as stipulated by the Capital Rules for Commercial Banks
(Provisional) and other regulations
Net capital base / (credit risk-weighted assets + market risk-weighted assets + Operational riskCapital adequacy ratio (CAR) weighted assets + capital floor adjustment <only applicable to those who use Internal Ratings-Based
Approach for credit risk weighted average assets calculation> × 100%
Tier-1 CAR
Tier-1 capital after deductions / (credit risk-weighted assets + market risk-weighted assets +
Operational risk-weighted assets + capital floor adjustment <only applicable to those who use
Internal Ratings-Based Approach for credit risk weighted average assets calculation> × 100%
Core tier-1 CAR
Net core tier-1 capital / (credit risk-weighted assets + market risk-weighted assets + Operational riskweighted assets + capital floor adjustment <only applicable to those who use Internal Ratings-Based
Approach for credit risk weighted average assets calculation> × 100%
Banking Newsletter
PwC
April 2015
57
Graph index (I)
Graph No.
Graph title
Page
Graph 1
Top 10 growth markets as picked by Global CEOs, 2015 Vs. 2014
6
Graph 2
China GDP growth, year on year
7
Graph 3
Residential property price movement in 2014
8
Graph 4
Retail sales & industrial production growth
8
Graph 5
M2 growth to GDP growth, 1991-2014
9
Graph 6
Net profit growth for commercial banks
10
Graph 7
NPL growth for commercial banks
10
Graph 8
Change in profitability indicators for the Major Listed Banks
15
Graph 9
Change in income mix, LCB Vs. JSCBs
16
Graph 10
Change in interest income growth
17
Graph 11
Change in intermediary business growth
17
Graph 12
Change in NIM for Major Listed Banks
18
Graph 13
Comparison of yields and costs, LCB Vs. JSCBs
19
Graph 14
Interest income growth by business
20
Graph 15
Interest income mix, LCB vs JSCB
20
Graph 16
Interest expense mix, LCB Vs JSCBs
20
Graph 17
Fee & commission income mix
21
Graph 18
Comparison of growth in intermediary businesses in 2014, LCB vs JSCBs
21
Graph 19
Total asset growth, LCBs vs JSCBs
22
Graph 20
Change in asset mix, LCB vs JSCBs
23
Graph 21
Loan growth for Major Listed Banks
23
Graph 22
Change in loan mix, LCB vs JSCBs
24
Graph 23
Change in personal loan mix
24
Graph 24
Loan balance by geographical areas
25
Graph 25
Corporate loans by industry in 2014, LCB vs JSCBs
25
Graph 26
Change in NPL ratios
26
Graph 27
Change in NPL balance, LCB vs JSCBs
26
Graph 28
NPL by region in 2014
27
Graph 29
Credit risk of Major Listed Banks (NPL％ as benchmark）
27
Graph 30
Corporate NPLs by industry in 2014
28
Graph 31
Overdue loans and NPLs the of Major Listed Banks
29
Graph 32
Credit costs of Major Listed Banks
30
Graph 33
LLR coverage ratio
30
Graph 34
LLR/total loan ratio
30
Graph 35
Write-offs, transfers & NPL net growth
31
Graph 36
LLR to overdue loans & LLR to NPLs, LCBs vs JSCBs
31
Graph 37
Comparison of the investment structures of Major Listed Banks
32
Graph 38
Change in liabilities mix
33
Graph 39
Liabilities growth, LCB vs JSCBs
33
Graph 40
Change in deposit growth
34
Banking Newsletter
PwC
April 2015
58
Graph index (II)
Graph No.
Graph title
Page
Graph 41
Change in loan-to-deposit ratios
34
Graph 42
Change of wealth management products balance for Major Listed Banks
35
Graph 43
Capital adequacy ratios
36
Graph 44
Graph 45
Degree of risks for selected banks
36
IRB approach coverage ratio for credit risk
37
Graph 46
Six common types of internet finance
40
Graph 47
Illustration of the 3 stages for expected credit loss impairment model
44
Graph 48
Timetable for IFRS 9 implementation
45
Graph 49
Key Contents of “Revisions to the Standardised Approach for credit risk (Consultative Document)”
47
Table 1
Net profit and growth for the Major Listed Banks in 2014
14
Table 2
Impairment loss ratio of receivables
32
Table 3
Disclosure information illustration
37
Table 4
Major Listed Banks’ innovative capital instruments issuance plan in 2015
38
Table 5
E-banking & mobile banking user numbers
41
Table 6
Major Listed Banks’ presence in different types of internet-based financial services
42
Table 7
Disclosure required by Regulation
48
Table 8
Product disclosure requirement, RMBS as an example
49
Banking Newsletter
PwC
April 2015
59
Banking and Capital Markets Contacts
Assurance
Advisory
Tax
Raymond Yung – Beijing
Matthew Phillips – Hong Kong
Florence Yip – Hong Kong
Tel: +86 (10) 6533 2121
Tel: +852 2289 2303
Tel：+852 2289 1833
[email protected]
[email protected]
[email protected]
Margarita Ho – Beijing
James Chang – Beijing
Matthew Wong – Shanghai
Tel: +86 (10) 6533 2368
Tel: +86 (10) 6533 2755
Tel: +86 (21) 2323 3052
[email protected]
[email protected]
[email protected]
Jimmy Leung – Shanghai
Chris Chan – Hong Kong
Danny Yiu – Beijing
Tel: +86 (21) 2323 3355
Tel：+852 2289 2824
Tel：+86 (10) 6533 2787
[email protected]
[email protected]
[email protected]
Richard Zhu – Beijing
Addison Everett – Beijing
Oliver Kang – Beijing
Tel: +86 (10) 6533 2236
Tel: +86 (10) 6533 2345
Tel：+86 (10) 6533 3012
[email protected]
[email protected]
[email protected]
Michael Hu －Shanghai
William Yung – Shanghai
Assurance – Risk & Quality
Tel: +86 (21) 2323 2718
Tel：+86 (21) 2323 1984
[email protected]
[email protected]
Tracy Chen – Shanghai
Tel: +86 (21) 2323 3070
Charles Chow – Shenzhen
William Gee – Beijing
Tel: +86 (755) 8261 8988
Tel：+86 (10) 6533 2269
[email protected]
[email protected]
[email protected]
Nigel Dealy – Hong Kong
Tel: +852 2289 1221
Shirley Yeung – Guangzhou
[email protected]
Tel：+86 (20) 3819 2218
[email protected]
Banking Newsletter
PwC
April 2015
60
PwC Offices in China
Beijing
Shanghai
Hong Kong
26/F, Office Tower A, Beijing Fortune Plaza
7 Dongsanhuan Zhong Road, Chaoyang District
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Dalian
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Chongqing
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Xiamen
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Room 1203, Tower E, Ningbo International Financial Center
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Tel: +86 (574) 8187 1788
Fax: +86 (574) 8187 1700
Unit B, 11/F, International Plaza
8 Lujiang Road, Siming District
Xiamen, P.R.C.
Zip: 361001
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Fax: +86 (592) 210 8800
Suzhou
Nanjing
Xi'an
Room 1501, Genway Tower
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Suzhou, P.R.C
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Fax: +86 (25) 6608 6210
7/F, Block D, Chang'an Metropolis
Center
88 Nanguan Street
Xi'an, P.R.C
Zip: 710068
Tel: +86 (29) 8469 2688
Fax: +86 (29) 8469 2600
Macau
Wuhan
Shenyang
29/F, Bank of China Building
323 Avenida Doutor Mario Soares, Macau
Tel: +853 8799 5111
Fax: +853 8799 5222
Unit 04, 41/F Wuhan Wanda Centre
96 Linjiang Avenue, Jiyuqiao, Wuchang District
Wuhan, P.R.C
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Room 705, EnterpriseSquare Tower A
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Banking Newsletter
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April 2015
61
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Review and Outlook of China Banking Industry in 2014

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