China’s banking sector has shown remarkable performance and stability in 2022, despite facing unprecedented difficulties and uncertainties from the COVID-19 pandemic, the real estate sector crisis, and the geopolitical tensions. The sector has continued to support the real economy and the green transition, while maintaining high profitability and asset quality.
Banking sector achieves high-quality growth in 2022
According to the latest report by Deloitte China, China’s banking sector recorded total assets in Renminbi and foreign currency of nearly RMB 380 trillion at the end of 2022, with year-over-year growth back up to 10%, surpassing the pre-COVID assets growth in 2018 and 2019. The sector also achieved a cumulative net profit of RMB 2.3 trillion, up 5.4% year-on-year.
The report also highlighted the optimization of the banking loan structure, with the year-end balance of inclusive loans to SMEs reaching RMB 23.8 trillion, up 23.8% year-on-year, and the year-end balance of green loans reaching RMB 22.03 trillion, up 38.5% year-on-year. The sector has played a vital role in facilitating the recovery and transformation of the real economy, especially in the areas of innovation, digitalization, and carbon neutrality.
Banking sector maintains strong resilience and stability amid risks
Despite the impressive performance, China’s banking sector also faced significant challenges and risks in 2022, such as the sluggish economic growth, the debt risk exposure in the real estate sector, the rising inflationary pressure, and the intensified geopolitical conflicts. However, the sector has demonstrated strong resilience and stability, thanks to the effective regulation and supervision, as well as the proactive risk management and innovation.
According to the data from the China Banking and Insurance Regulatory Commission (CBIRC), China’s banking sector maintained the upward trend in profitability and achieved a return on equity of 10.8% in 2022, slightly lower than the 11.6% in the US over the same period, but significantly higher than the 6.3% level seen in the eurozone. The sector also realized steady improvement in asset quality, continuously reduced the NPL ratio, increased liquidity coverage and capital adequacy ratios, as well as improved their capabilities in risk control.
Banking sector faces new opportunities and challenges in 2023
Looking ahead, China’s banking sector is expected to maintain a broadly stable performance in 2023, while facing new opportunities and challenges from the domestic and international environment. According to Fitch Ratings, the large banks in China will benefit from their diversified business models, strong capital buffers, and ample liquidity, while the smaller banks, especially those more concentrated in less economically advantageous regions, will face rising profitability and asset-quality challenges.
In addition, China’s banking sector will need to keep providing substantial financial support to achieve the “dual carbon” goals and address climate risks, as well as to cope with the digital transformation and the fintech competition. The sector will also need to enhance its global competitiveness and cooperation, amid the changing geopolitical landscape and the regional integration initiatives.
