As the Chinese economy decelerates, bad loans are rising and profit growth is slowing, PwC says.

The profits of China’s largest listed commercial banks, some of which engage in wealth management, may have peaked as the economy decelerates and data shows rising risks in the system, according to a survey of the sector by PricewaterhouseCoopers.

The large commercial banks in the PwC analysis are Industrial and Commercial Bank of China; China Construction Bank; Agricultural Bank of China; Bank of China, and Bank of Communications.

Other firms in the list of 18 banks are China Merchants Bank; Shanghai Pudong Development Bank Co; CITIC Bank Corporation; China Minsheng Banking Corp; China Everbright Bank; Ping An Bank; Shengjing Bank; Huishang Bank; Harbin Bank; Bank of Chongqing; Bank of Jinzhou; Bank of Zhengzhou, and Bank of Qingdao 

As well as there being a deceleration of profits, asset quality risk is rising, PwC said in a newsletter.

Net profits grew by an average of 1.91 per cent across the 18 banks last year, down from 7.39 per cent in 2014. 

“This significant slowdown masks a wide range of performance, determined by the size and scope of the banks,” the study said.

Net profit growth at the five large commercial banks slowed to 0.69 per cent (2014: 6.52 per cent). Growth at the six joint-stock commercial banks also slowed significantly to 4.21 per cent, down from 9.74 per cent in 2014. However, net profit growth at the seven city commercial banks actually increased, up 26.60 per cent, against 19.76 per cent the previous year. Overall, net interest margin narrowed by 0.15 percentage points to 2.46 per cent.

“Due to the economic slowdown, listed banks have increased provisions. This has restricted the growth in their net profit,” said Jimmy Leung, PwC China banking and capital markets leader. “The liberalisation of interest rates – with the impact of rate cuts – has led to slower growth in interest income, which also curbed profit growth."

At the end of 2015, the total assets of the 18 listed banks stood at RMB111.08 trillion (around $17 trillion) – a year-on-year increase of 12.12 per cent. But credit risk also grew – non-performing loans rose by 48.61 per cent to reach RMB948.28 billion. 

The average NPL ratio was 1.65 per cent, up from 1.22 per cent a year earlier. The banks stepped up their efforts to address this, writing off or transferring RMB386.1 billion in NPLs, up 67 per cent from 2014.