The firm has run the rule over the financial health of China's banking system - one that has raised concerns about its ability to withstand an economic slowdown.

Bad loans at the larger Chinese commercial loans - as a share of overall business - have fallen and earnings improved, according to a PricewaterhouseCoopers study. The health of the Chinese lending system remains a hot topic.

The overall non-performing loan ratio of large commercial banks fell slightly in 2018. At the six largest banks, the NPL ratio was 1.45 per cent, while that of the joint-stock commercial banks was 1.66 per cent. Less happily, at city/rural commercial banks, the ratio rose by 0.4 percentage points to 1.54 per cent, as credit assets came under pressure.

“The key driver behind the improved earnings was an increase in net interest margin. Although profit indicators eased slightly, most banks still outperformed their global peers," Jimmy Leung, PwC China Financial Services Leader, said.

Some policymakers worry about the Chinese banking system and whether it will be hit if the country's economy decelerates rapidly. Last year, for example, a warning was fired by Yu Xuejun, the chairman of the supervisory board for key state-owned financial institutions at the China Banking and Insurance Regulatory Commission. Yu predicted that the industry, which has $38 trillion in assets, will see a surge in non-performing loans, but told a financial forum in Beijing that the government cannot allow another round of large-scale credit expansion as it is still trying to address the problems generated by previous stimulus efforts (South China Morning Post, 23 August, 2018).

PwC set out data in its China Banking Newsletter 2018 Review and Outlook.

The total assets, net profit and operating income of Chinese listed banks continued to rise in 2018, while credit quality showed mixed performance.
"As China tightens its grip on capital, Chinese listed banks will have to gear up replenishing their capital in the future. As the banking industry underwent positive business transformation in 2018,  we saw a greater focus on credit supply in retail business. At the same time, the new wealth management regulations to transform wealth management business has also achieved initial results," it said.

The report covered the 2018 financial results of 33 A-share and H-share listed banks. Three categories of banks are classified in terms of asset scale and business scope, including six Large Commercial Banks, seven Joint-Stock Commercial Banks and 20 City Commercial Banks and Rural Commercial Banks.

At the end of 2018, total assets of the six Large Commercial Banks amounted to RMB113.85 trillion, up 6.61 per cent year on year, However, the growth rate  was 0.72 percentage points lower than the same period in 2017. Total net profit of the six Large Commercial Banks hit RMB1.08 trillion,  rising at an annual rate of  4.71 per cent year on year.

Total assets of the seven Joint-Stock Commercial Banks totaled RMB34.52 trillion by the end of 2018, rising 4.96 per cent, which was 2.04 percentage points higher year on year. Total net profit of the seven Joint-Stock Commercial Banks reached RMB303.14 billion, up 6.29 per cent year on year. The impact on City Commercial Banks and Rural Commercial Banks varied in line with economic performance in the regions where they operate.