A survey of 27 Chinese banks - some of which are in wealth management - shows that the days of easy, fast profit growth are likely over.

China’s listed banks continued to grow their net profits in 2016, but they will face increasing pressure to maintain this growth, according to

PricewaterhouseCoopers in a review of the sector, issued yesterday.

Slowing economic growth and downward pressure on interest rates mean that net interest margins will continue to narrow and asset impairments will increase. Banks are leveraging asset expansion and solid growth in their intermediary business to help drive growth. But credit asset quality and provision coverage remain under pressure, PwC said.

The study examines the 2016 annual results of 27 A-share and H-share listed banks, published as of 31 March 2017.

“Asset expansion is the main way these banks have been stabilising profit growth,” Jimmy Leung, financial services leader for PwC China, said. “But fees from intermediary business are also important. They increased as a proportion of total interest and fee income across all the listed banks. For the Joint-Stock Commercial Banks, non-interest income was nearly a third of operating income," he continued.

The comments add to another recent report about the health - and challenges - faced by banks in Asia, including mainland China. A few days' ago, for example, Oliver Wyman, the consultants, noted that Asian banks have logged annual rises in assets of almost 10 per cent since 2009, and now hold 40 per cent of global banking assets, but life is getting tougher.

These banks have managed to maintain average return on equity of more than 10 per cent, with particularly strong ROE levels in China and some Southeast Asian markets. Domestic and regional institutions’ share of Asia-Pacific banking has risen sharply, taking 75 per cent of the total banking market, up from 60 per cent in 2009.

PwC study
The PwC study shows that different categories of banks are facing different challenges. Pre-tax profits were flat or fell for the large commercial banks, as net interest income declined and growth in fee-based income was slow. At some joint-stock and city commercial banks, operating profit growth remained healthy, but net profits were impacted by provisions. For rural commercial banks, net profit growth was more variable, reflecting the influence of regional differences on profitability.

Non-performing loans remained a concern last year, the report said. NPL ratios increased across the board to an average of 1.67 per cent at end-2016, up from 1.61 per cent the previous year. The NPL balance was up 16.80 per cent year-on-year to reach RMB 1.154 trillion.