Banks Strengthen Retail Risk Control (AI Translation)

【周刊提前读】银行加强零售风控 海外寻求新支点

The banking sector in China is facing challenging times, as highlighted by Lu Jiajin of the Industrial Bank, who emphasized the need to save costs and improve work quality due to uncertainties in the external environment [para. 1]. The past year has seen complex global volatility and insufficient domestic credit demand. Some large and medium-sized banks have turned net profit growth rates from negative to positive, aided by scale expansion and a strong bond market, yet they face quality issues in growth, rising non-performing loans, low interest margins, and high risks. Leading banks are seeking international and diversified business growth [para. 2][para. 3].

For the major state-owned banks as of March 31, 2025, the average revenue growth for 2024 was projected at 0.17%, marking a decrease of 41 basis points compared to the previous year. Net profit growth rate is forecasted at 1.64%, which is better than earlier negative growth rates [para. 4]. Joint-stock banks showed a -0.64% revenue growth for 2024, with improvements at certain banks like China Zheshang Bank, whereas net profit showed an overall positive growth reversal [para. 5]. Urban and rural commercial banks showed diverse performance based on local economies, with mixed results in revenue and net profit [para. 6].

Banks' revenue structures have shifted, with non-interest income playing a larger role due to narrowed net interest margins. Reducing costs is crucial amidst income pressures, as reflected in decreasing cost-to-income ratios at several banks [para. 7]. Some banks are also reducing provisions to smooth profit growth, although retail risk pressures have persisted, particularly with non-performing loan rates rising [para. 8]. Retail strategies are being reevaluated due to increased non-performing rates in personal loans across most banks [para. 9].

Liu Jun of ICBC outlined strategic focuses on internationalization and integrated operations, aiming to leverage these segments for future growth [para. 10]. Amidst a competitive domestic market, banks like China Merchants Bank and Industrial Bank are gearing towards international expansions to diversify revenue sources [para. 11]. However, new uncertainties arise due to geopolitical tensions, exemplified by the global tariff wave initiated by the U.S. [para. 12].

Bank stocks surged over 34% in 2024, yet still trade below net asset value, driven by unresolved retail loan risks. Adding to this, individual loan non-performing ratios for major banks rose significantly [para. 13]. ICBC's personal non-performing loan rates illustrate the rising trend, with consumer loans and credit cards identified as risk hotspots [para. 14]. The upward trend in NPLs is not limited to banks, affected by fraudulent risks and real estate price declines [para. 15]. Efforts are underway to alleviate the financial burdens on debt-distressed individuals [para. 16].

Despite asset quality deterioration affecting retail profits, some banks like China Minsheng have seen improvements in delinquency rates, while others continue to navigate challenges [para. 17]. Banks like China Merchants Bank see long-term value in retail loans for asset allocation despite risks, emphasizing loan growth and effective customer targeting [para. 18]. In corporate loans, banks saw an improvement in non-performing loan ratios, with banks like CCB increasing support for credit in infrastructure and private economies [para. 19].

In terms of income, banks face narrowing interest margins but are required to maintain stable spreads while balancing loan growth [para. 20]. The bond market bull run in 2024 was crucial for banks, although bond yield fluctuations present ongoing challenges [para. 21]. Many banks now focus more on trading within financial markets, shifting strategies from traditional allocation to diversified tactical trading [para. 22]. Non-interest income from bond market gains is now a significant focus, with adjustments predicted amidst the volatile environment [para. 23].

Banks seek new avenues, such as internationalization and diversified operations, to counter low-interest conditions. ICBC and Bank of China lead in overseas operations, contributing greatly to growth, with efforts focused on financial services expansion [para. 24][para. 25]. With evolving geopolitical landscapes and de-globalization trends, banks like China Merchants Bank are cautiously expanding overseas while managing risks [para. 26].

Diversification through financial subsidiaries is pursued by banks like Industrial Bank, signaling robust growth efforts despite underlying performance pressures. Coordination between these subsidiaries is vital for fostering growth in non-interest income [para. 27].