Adapting to changes and building up momentum toward high-quality development – EY releases Listed banks in China: 2023 review and outlook report

EY Greater China Region today released its Listed Banks in China – 2023 review and outlook report (Executive summary). The report delves into the latest changes in the operating performance, asset quality, business structure and operating model of 58 listed banks¹ in China in 2023. It also sheds light on the transformation efforts made by these banks through a review of their development over the past five years. During this period, uncertainty has become the new normal, with profound changes in the macro environment. Despite facing a complex and turbulent business environment, listed banks have embraced and adapted to changes, sought progress while maintaining stability on the path to achieving high-quality development.

Concurrently, EY team released the Overview of Q1 2024 Results of 42 Chinese A-share listed banks (the “Overview”). According to the Overview, in Q1 2024, net profit of the 42 A-share listed banks declined by 0.81% year-over-year (YOY), operating income decreased by 1.73% YOY, while total assets at the end of Q1 2024 grew by 3.93%, a drop of 1.69 percentage points from 5.62% at the end of Q1 2023; the weighted-average non-performing loan (NPL) ratio reduced to 1.25%, 0.01 percentage points lower than that at 2023 year-end. Overall, listed banks remained under great operational pressure in Q1 2024.

Seeking progress and maintaining stability to support real economy with high-quality development

Growing complexity and uncertainty loomed due to the significant changes in the 2023 macro environment. In light of operational development challenges, listed banks reported a decline in net interest margin for the fourth consecutive year, with an average net interest margin of 1.69% in 2023, down 25 basis points from 2022; while net interest income contracted 2.98% from 2022, the first YOY decline since 2017, and fee and commission income fell 8.05% YOY. Given the decrease in net interest income and net fee and commission income, listed banks reported total operating income of RMB5,869.905 billion in 2023, down 0.98% YOY.

Kelvin Leung, EY² Greater China Financial Services Banking & Capital Markets Leader, says: “Amid the turbulent and complex business environment, domestic listed banks are embracing and adapting to changes. They are aligning with the needs of the real economy while upholding the philosophy of “finance for good”. Their efforts focus on five major areas: technology finance, green finance, inclusive finance, pension finance and digital finance. By prioritizing these areas, the listed banks aim to improve operation and management efficiency, exercise prudence in operation, ensure coordinated development with security, and strive for progress with stability. Through these measures, they are navigating business cycles and achieving high-quality development for the long run.”

According to the report, despite a YOY decline in operating income, listed banks reported a positive growth in net profit with reduced cost and increased efficiency, strengthened risk management and lowered credit cost, while net profit totaled RMB2,169.047 billion, up 1.43% YOY; operating expenses increased by 2.17% YOY, which was 2.22 percentage points lower compared with the previous year; the cost of credit fell to 0.76%, down 8 basis points YOY, and impairment provision recorded in the income statement decreased by 8.82% YOY. Operating results varied across different types of banks: small and medium-sized banks, in particular, need to strengthen their presence and improve resilience to contravene the changes in the macro environment when compared with large banks.

In 2023, listed banks adhered to the fundamental purpose of serving the real economy, focused on key business components, and optimized financial service support to vitalize the real economy. At the end of 2023, total assets of listed banks reached RMB293,909.362 billion, up 11.14% YOY, among which loan balance (net balance after deducting impairment provisions) increased by 10.91% YOY.

Meanwhile, listed banks remained committed to the continued progress in innovation, and further supported the development of the key industries such as technology, advanced manufacturing, and emerging sectors of strategic importance, contributing to the development of new quality productive forces. At the end of 2023, the balance of loans extended to manufacturing sectors by listed banks rose by 18.71% YOY. Driven by measures to lower financing cost of the real economy, including reducing fees with narrowing profits, the loan yield of listed banks in 2023 shrank by 0.26 percentage points compared to 2022.

Upholding the philosophy of “finance for people” to avert financial risks

The report showed that listed banks witnessed a sustained rapid growth in retail asset under management (AUM) by providing a variety of financial offerings in line with people’s pursuit of better living standards. Among the listed banks with total assets exceeding RMB1 trillion, 22 banks disclosed retail AUM data in their annual reports, totaling RMB117.42 trillion at 2023 year-end, which is an increase of RMB10.06 trillion from the end of 2022. Meanwhile, listed banks continued to improve private pension services, increase the variety and quantity of pension products to meet the wealth management needs of private pensioners. At the same time, listed banks put into practice the new financial development philosophy by fulfilling their social responsibilities, and advanced the development of green finance and inclusive finance. By the end of 2023, 49 listed banks disclosed data on green loans, with a balance totaling RMB22,893.1 billion, up 40.29% YOY; 51 listed banks disclosed data on inclusive loans, with a balance totaling RMB18,188 billion, up 28.40% YOY.

Benny Cheung, EY³ China South Financial Services Market Leader, says: “Listed banks are implementing the ESG philosophy, fulfilling social responsibilities, and driving advancement of green finance and inclusive finance. They are incorporating the concept of ‘Good’ into the financial services to generate both social and business value. With the evolving ESG regulations and standards, it is imperative for listed banks to enhance their ESG governance and management capabilities.”

According to the report, in 2023, listed banks adhered to prudence in operation, strengthened risk prevention in key areas, improved automation in risk prevention and control, thus maintaining a stable quality of assets. On 31 December 2023, the NPL balance of the listed banks was RMB2,160.04 billion, an increase of RMB149.095 billion from the prior year-end. On a percentage basis, the weighted-average NPL ratio dropped to 1.29%, down 1.33% from 2022 year-end, however, increased risks in the real estate sector saw the weighted-average NPL ratio of corporate loans to this sector rising to 3.80%, up 0.26 percentage points from 2022 year-end; the weighted-average provision coverage ratio of the listed banks was 240.10%, up 2.39 percentage points from 2022 year-end; the weighted-average capital adequacy ratio of all listed banks was 15.80% at 2023 year-end, remaining the same as last year. 

Cheung adds: “Despite ongoing exposure to risk associated with loans in the real estate sector, listed banks managed to stabilize overall NPL ratios by resolving and disposing non-performing assets. These banks actively replenished their capital through both internal and external channels, steadily maintaining capital adequacy ratios and their capability to resist risks. Notably, certain small and medium-sized banks experienced higher NPL ratios, remaining under great pressure due to poor asset quality, resulting in larger discrepancies between NPLs and impaired loans.”

Accelerating digital and intelligent transformation powered by technology and innovation

With the rapid advancement of digital transformation, listed banks are entering a phase of steady growth in their technology investment. Their attention is shifting towards the integration of technology and business operations, as well as the quality and efficiency resulting from digitization. In 2023, 25 listed banks disclosed their investment in technology, totaling RMB197.012 billion; 27 listed banks disclosed the number of FinTech/IT personnel, and the total number of related personnel exceeded 144,200. According to the data of the 25 listed banks that disclosed the number of FinTech personnel in the last three years, the proportion of technology personnel continued to rise, up to 5.98% from 5.04% in 2021.

With the rise of generative artificial intelligence and increased focus on large-scale artificial intelligence models within the banking industry, a growing number of listed banks have achieved breakthroughs in capacity building and the development of business scenario. As a result, there has been a remarkable transition towards digital and intelligent transformation, surpassing traditional digital transformation. Leung says: “Currently, digital intelligence capability has become the core competitiveness of listed banks. The research and implementation of large-scale models are expected to redefine existing products and services, business processes, operational frameworks and even business models, bringing new opportunities for banking transformation. While presenting new opportunities for the banking sector, the application of large models will also pose challenges, encompassing data privacy and security, model interpretability, prediction accuracy as well as ethical and legal issues.”

Looking ahead to 2024, Cheung anticipates that China's economy will continue its upward trajectory, and there will be new opportunities for listed banks despite the uncertainties and challenges. To ensure long-term sustainable development, it is crucial for these banks to prioritize their core business while striking a balance between functionality and profitability, scale and efficiency, risk prevention and growth. They must strategically plan for both long-term and short-term goals, seeking transformation within a stable environment and actively pursuing growth through proactive transformation. By embracing digital and intelligent transformation and offering unique financial services tailored to clients’ needs, listed banks can contribute to the country’s overall development and bolster its financial power.

¹ 15 A+H-share listed banks, 27 A-share listed banks and 16 H-share listed banks are included, with total assets and net profit accounting for 83% and 93% of all commercial banks in China, respectively.

² Ernst & Young Hua Ming LLP

³ Ernst & Young, Hong Kong

-Ends-

Notes to Editors

About Listed banks in China: 2023 review and outlook report

This is the 17th EY annual report on China’s listed banks. The purpose of this annual report is to provide an outlook on the direction of the future development of China’s banking industry based on the observations of the businesses, operating models and regulatory environment of listed banks in China.

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