In the blink of an eye, we are about to enter 2024. What is the development of China's banking industry in 2023?What trends will emerge in 2024?Recently, the Bank of China Research Institute released the "Global Banking Outlook Report", from which technology finance will select the relevant content of "China's banking industry", including macro policies, bank operations, and the "inclusive finance" and "real estate market" that are frequently mentioned this year, together with the 2023 and upcoming 2024 of China's banking industry.
The macro economy is showing a trend of recovery growth, and the banking industry has provided strong support for economic development
From January to October 2023, the economic "troika" showed a steady development trend. The amount of investment in fixed assets was 4194 trillion yuan, a year-on-year increase of 29%, the banking industry aimed at infrastructure investment, manufacturing investment, green and high-tech and other hot areas to make efforts to provide credit to ensure the important role of investment in economic recovery. The total retail sales of consumer goods were 3854 trillion yuan, a year-on-year increase of 69%, the banking industry actively responded to the national strategy of expanding domestic demand, and deepened its business space in various consumption scenarios of residents' clothing, food, housing and transportation, and vigorously promoted the recovery of consumption. The total value of imports and exports of goods was 3432 trillion yuan, a year-on-year increase of 003%, the banking industry has taken multiple measures to provide high-quality financial support for imports and exports, and ensure the stability and quality of foreign trade.
Looking forward to 2024, the overall economic operation will continue to be stable, and the banking industry will continue to contribute to the effective improvement of the quality of the economy and the reasonable growth of the quantity.
Figure 1 - National investment, consumption and ** year-on-year growth.
Fiscal and monetary policies should reasonably grasp the pace and intensity to provide a suitable environment for the banking industry to meet the financing needs of the market
In 2023, China will implement precise and effective macroeconomic policy regulation and control to guide the sustained recovery of the economy. While effectively reducing the financing costs of market entities, the banking industry has consolidated its support for key areas and weak links in the real economy, such as scientific and technological innovation, green development, inclusive small and micro enterprises, and digital technology. At the end of October, the stock of RMB loans and social financing increased year-on-year. 3%）。
Looking forward to 2024, macro policy regulation and control will be further optimized, and the policy "combination punch" will pay more attention to precision and effectiveness, guide the banking industry to meet the reasonable financing needs of all parties, and provide high-quality services for the development of the real economy.
Figure 2 - Scale and growth rate of social financing and RMB loans.
The intensity of support for the real economy has not decreased, and the scale of assets and liabilities has increased steadily
At the end of the third quarter of 2023, the total assets of commercial banks were 3484 trillion yuan, a year-on-year increase of 105%；Total liabilities 3214 trillion yuan, a year-on-year increase of 107%。The steady expansion of the assets and liabilities of commercial banks will continue, and the annual growth rate is expected to remain at about 11%.
Affected by the acceleration of bond issuance, the proportion of RMB loans in the scale of social financing in the same period decreased, and at the end of October 2023, RMB loans accounted for 62% of the scale of social financing in the same period30%, down 019 percentage points, but it is still an important force that continues to drive the growth of the banking industry.
Looking forward to 2024, the banking industry will continue to play the fundamental role of consumption and the key role of investment, and the growth rate of scale will be consistent with the pace of economic recovery, and the growth rate of commercial banks' assets and liabilities is expected to remain at a high level of about 10% throughout the year.
The real economy has been benefited, and the profitability of the banking industry has been stable
With the wave-like development and zigzag progress of the economic recovery process, the banking industry has stepped up capital protection. Since 2023, the net interest margin of the banking industry has continued to narrow with the decline of LPR, and at the end of the third quarter, the net interest margin of commercial banks was 173%, down 021 percentage points.
In the first three quarters, commercial banks achieved a cumulative net profit of 186 trillion yuan, a year-on-year increase of 16%；The average return on capital is 945%, an increase of 013 percentage points. In addition to the narrowing of net interest margin, the growth of non-interest income was sluggish, and the non-interest income of commercial banks accounted for 2062%, down 1. from the previous quarter22 percentage points. In 2023, taking into account the narrowing of interest margins and the development of non-interest business, the net profit growth rate of commercial banks will fall back to less than 2% for the whole year.
Looking forward to 2024, under the economic growth target, it is expected that various policies will be flexible and moderate, forming a synergy, providing a macro foundation for the growth of bank deposits and loans and laying the cornerstone of industry profitability, and the profit growth rate of commercial banks will remain at about 3%.
In the recovery, risks were strictly controlled, and the asset quality of the banking industry was basically stable
In 2023, while reducing the financing cost of the real economy, the banking industry attaches great importance to credit risk management, comprehensively uses a variety of disposal methods to prevent and resolve potential non-performing risks, and the overall asset quality is improving. At the end of the third quarter, the asset quality of commercial banks as a whole showed the characteristics of "one rise and one decline". Among them, the balance of non-performing loans was 322 trillion yuan, a year-on-year increase of 780%；The non-performing loan ratio is 161%, down 005 percentage points. At the same time, the banking industry's ability to offset risks has been further enhanced. In the third quarter, the balance of loan loss provisions of commercial banks was nearly 67 trillion yuan, a year-on-year increase of 903%；The provision coverage ratio is 20789%, an increase of 2 year-on-year35 percentage points.
From the perspective of the whole year, with the steady recovery of the real economy and the improvement of the operating conditions of corporate entities, the asset quality of commercial banks will continue to improve, and the non-performing loan ratio is expected to decline further. **The Financial Work Conference attaches great importance to the resolution of domestic financial risksIn 2024, the growth rate of non-performing loans of commercial banks is expected to slow down further, and the non-performing loan ratio indicator is expected to continue its downward trend.
The capital adequacy is good, consolidating the foundation for the high-quality development of the banking industry
At the end of the third quarter of 2023, the capital adequacy index of commercial banks remained stable, with a capital adequacy ratio of 1477%, a slight decrease of 032 percentage points, up 011 percentage points;The Tier 1 capital adequacy ratio was 1190%, down 031 percentage points;The core Tier 1 capital adequacy ratio was 1036%, down 028 percentage points.
From the perspective of the whole year, the growth rate of net profit of commercial banks stabilized, and there were positive signs of endogenous financingThe scale of credit allocation continued to increase rapidly, the scale of risk-weighted assets increased, and the overall capital adequacy ratio of commercial banks remained stable.
In 2024, the economic recovery will continue to consolidate the profit foundation of commercial banks, and the overall logic of "making up the price by volume" will still hold, and the endogenous capital replenishment of commercial banks will have a certain guaranteeThe replenishment of exogenous capital will be further consolidated under the combined influence of factors such as shareholder capital increase, issuance of perpetual bonds, and directional issuance of local ** special bondsThe overall capital adequacy ratio will rise steadily.
The table shows the development indicators of China's commercial banks from 2023 to 2024**.
Financial inclusion: In the face of challenges, we still need to focus on it
Since the issuance of the "Plan for Promoting the Development of Inclusive Finance" in 2015, China's inclusive finance has developed rapidly and has been greatly improved in terms of availability and convenience, but sustainable development still faces certain challenges and needs to focus efforts.
After years of rapid growth, China's inclusive finance has gradually shown a certain risk profile. According to the data released by the former China Banking and Insurance Regulatory Commission from time to time, since the beginning of 2019, even in the face of the challenges of the epidemic, the non-performing loan ratio of China's inclusive finance has been declining year by year: in April 2022, the balance of non-performing loans of inclusive small and micro enterprises nationwide was 447.6 billion yuan, and the non-performing loan ratio was 218%, which is only 0About 5 percentage points. However, the phased characteristics of the development of inclusive finance and institutional risks are still worthy of attention.
First, the operation of small and micro enterprises is still facing challenges, and potential risk pressure still exists. In 2022, among the 40 representative cities selected according to the criteria of affluence, population size, and city level, the permanent resident population is 42.7 billion, accounting for 30% of the total Chinese population;Among them, the total number of enterprises is 282160,000, the total number of cancellations is 1.94 million, and the cancellation ratio is 69%。Judging from the cancellation of small and micro enterprises, in 2022, among the key 40 cities, 69 small enterprises will be cancelled50,000 households, with a cancellation ratio of 51%；The number of write-offs of micro-enterprises was 11140,000 households, with a cancellation ratio of 108%；The number of deregistered small and micro enterprises accounted for 93% of all deregistered enterprises.
Second, the rapid growth of loans in the field of inclusive finance has delayed risk exposure to a certain extent. Since 2018, domestic inclusive small and micro enterprise loans have maintained rapid growth for five consecutive years, with an average annual growth rate of more than 20%. The relatively high growth rate in a short period of time has expanded the denominator of the calculation of the non-performing ratio of inclusive finance-related loans, and there is not enough time for new loans to be exposed in recent years. In addition, the policy of deferring principal and interest repayment for inclusive small and micro enterprises has delayed some of the risk exposure.
Third, there is a clear differentiation of institutional risks in inclusive finance, and the risks of rural financial institutions are prominent. According to the financial institution rating results of the People's Bank of China in the fourth quarter of 2022, among the 346 high-risk financial institutions in the country, 314 are rural financial institutions, accounting for 908%；Nearly 8Three per cent of rural financial institutions are classified as high-risk financial institutions.
Figure 3 - Proportion of inclusive credit contribution by different types of commercial banks
Source**: State Administration of Financial Regulation, Bank of China Research Institute.
In view of the current situation of inclusive finance, the future policy orientation is suggested:
First, we need to make the policy support system more normal, sustainable and dynamic. Policy tools such as re-lending, re-discounting, differentiated reserve ratios, and macro-prudential assessments will be normalized to form stable expectations for the development of the industry. According to the macroeconomic and financial situation, the scale and quality of inclusive financial development, and other changes, the scale and structure of monetary policy tools will be dynamically adjusted, and the expansion of business coverage will be guided. Consideration could be given to further designing the third tranche of targeted RRR reduction for inclusive finance, and the statutory reserve requirement ratio should be lowered by 2 on the basis of the benchmark tier5% to further encourage banks to carry out inclusive financial business. The fiscal policy focuses on transforming the policy signal into a long-term signal, and the preferential tax policies for small loans and agriculture-related loans implemented by financial institutions can be implemented in stages, so as to improve the scale and efficiency of special funds for the development of inclusive finance, and strengthen the reward and subsidy policy for the demonstration zone for the development of inclusive finance.
Second, financial institutions should be guided to implement policies according to their business conditions. Encourage large and medium-sized banks to continue to expand the scale of inclusive financial business, play the role of the "main force", innovate inclusive financial products, and carry out market-oriented pricing on the premise of fully considering the availability, convenience and safety of inclusive finance, so as to meet the needs of inclusive groups for "short, small, frequent and urgent" credit funds. Promote the deepening of the reform of small and medium-sized banks, resolve the risks related to inclusive finance, promote and guide local corporate banks to adhere to the local positioning, focus on supporting agriculture and small enterprises, improve the professional inclusive financial operation mechanism, and improve service methods;Adhere to early identification, early warning, early detection, and early disposal, and strengthen risk monitoringOn the basis of improving the corporate governance mechanism, we will replenish capital through multiple channels. Guide non-bank financial institutions to increase inclusive investment, encourage insurance institutions to expand the coverage of agriculture-related insurance, and reduce the premium level of loan guarantee insurance for small and micro enterprises;Encourage institutions to issue small and micro financial bonds and expand small and micro credit funds.
Third, we need to remove the constraints on the digital transformation of inclusive finance. Encourage the development of a new generation of information infrastructure, digital resources and information technology industries in underdeveloped and rural areas, continue to promote the construction of rural payment environment, promote the popularization and application of new payment methods such as mobile payment, and guide mobile payment convenience projects to sink into rural areas. Strengthen the top-level design of systems for the aggregation, sharing, and application of credit information, completing mechanisms for information aggregation, sharing, inquiry, and docking, as well as related standards, in accordance with laws and regulations, to ensure data security. Strengthen relevant education, strive to bridge the "knowledge gap" of residents in these areas, and improve the ability to master the knowledge and skills related to digital inclusive finance.
Fourth, strengthen the construction of the credit system and reduce the cost of risk. Carry out the establishment of a rural credit system in conjunction with rural governance, and clear channels for grassroots party and government organizations and social organizations to participate in the establishment of a credit environment. Establish and improve local financing credit service platforms, strengthening the sharing and integration of credit information on the premise of strictly complying with provisions on the confidentiality of credit information, and bringing about cross-departmental credit information sharing. Give better play to the role of local credit reporting platforms, expanding the coverage of information services for financial institutions and key groups of inclusive finance in the region.
Real estate market: Housing rental finance helps the real estate market to transform smoothly
With the major changes in the relationship between supply and demand in China's real estate market and the continuous release of favorable housing rental policies, the housing rental market is expected to usher in rapid development. At the same time, the gradual implementation of the financial support for housing leasing policy, the continuous expansion of the housing leasing financial business model, and the continuous increase in scale, can become the next trillion-level new growth point of the banking industry.
In this regard, several suggestions for financial institutions to develop housing rental finance business:
First, attach great importance to and seize the period of development opportunities. With the continuous implementation of various housing rental policies, the housing rental market will usher in a horse race stage of seizing the market, personalized services, differentiated competition, and survival of the fittest. In the early stage of market development, financial support is most needed. At this time, financial institutions can meet the corresponding capital needs in the investment, development, operation and management stages of rental housing for different market entities, and provide diversified, multi-level and full-cycle financial servicesIt will be conducive to establishing a long-term, stable, mutually beneficial and win-win cooperative relationship with customers.
Second, deepen research and identify market entry points. The focus is on the net inflow of population.
First- and second-tier cities and industrial parks with concentrated industries will focus on exploring the financial needs related to centralized long-term rental housing. Comprehensively track the planning and construction of affordable rental housing at all levels, timely grasp the demand for supporting talent apartments in various industrial parks and development zones, pay close attention to housing rental projects such as self-built or rebuilt employee apartments of labor-intensive enterprises, and follow up the planning and development of leading housing leasing enterprises. Support the transformation of industrial plants, commercial office buildings, and urban villages into long-term rental housing in accordance with the law, and focus on supporting self-owned property-based housing rental enterprises that operate as independent legal persons, have clear business boundaries, and have professional real estate investment and management capabilities. With the power of finance, we will promote the large-scale and intensive operation of housing rental enterprises, and improve the supply capacity and operation level of long-term rental housing.
Third, we should give full play to our professional advantages and innovate financial products and services. Within the scope permitted by the policy, through the establishment of mother and child ** or the provision of loans to professional housing rental enterprises, etc., the acquisition of housing stock projects of real estate enterprises, to increase the market supply of housing rental. Accelerate the innovation of housing leasing investment, credit and financial service models, actively carry out corporate financial businesses such as housing leasing-related development and construction company loans, rental housing group housing purchase loans, and expand investment bank asset management businesses such as financial bond underwriting and real estate investment trusts related to housing leasing. On the premise of satisfying regulatory requirements, we will launch consumer loans for individual housing rental customers in a timely manner to help tenants enjoy rent concessions and stabilize the lease term through one-time rent payment.
Fourth, strengthen risk management and guard against potential risks. Strengthen the compliance review and commercial sustainability assessment of borrowers and project attributes, strictly manage post-loans, strengthen the investigation and tracking of the authenticity of loan purposes, effectively prevent the risk of misappropriation and cash-out, and ensure that funds are used for housing rental construction and operation.