China's 21 listed banks reported a further slowdown in net profit growth, at an average pace of below 10 percent, according to a report released by Ernst & Young (EY) in Beijing on Tuesday.
The net profits of the 21 listed banks in 2014 totaled more than 1.28 trillion yuan ($206 billion), a 7.87 percent increase from 2013, and the average growth rate was 5.06 percentage points lower compared with that in 2013 of 12.93 percent, according to the report.
The report also noted that the net profit growth of A-share listed banks was 3.25 percent, an 8.59 percentage point decrease compared with the same period in 2014.
The decline in net profit growth was mainly due to the increased provisions for impairment losses on loans, Geoffrey Choi, Assurance Leader of EY Financial Services in Greater China, said at the press conference.
Choi noted that in 2014 the amount of provision for loan impairment of the 21 listed banks increased by 165.27 billion yuan, or 61.72 percent.
The report also said the nonperforming loans (NPL) of listed banks have risen consecutively over the three years since early 2012, while the NPL ratio has been rising over the past two years.
At the end of 2014, NPLs of the 21 listed banks reached 674.88 billion yuan, an increase of 189.26 billion yuan compared with the previous year-end, and the weighted average NPL ratio increased to 1.21 percent from 0.97 percent at the end of 2013, said the report.
Xu Xuming, partner of EY Financial Services in Greater China, said that the banks saw NPLs in more sectors, as well as rapidly expanded risk exposure from cross-guarantees among groups of borrowers.
He noted that apart from overcapacity in the manufacturing and wholesale and retail industries, NPLs are also growing in upstream and downstream industries involving commodity production such as the coal and mining industries.
Choi predicted the finance sector this year will face major challenges in switching over from business tax to value-added tax (VAT), as the reforms will not only impact income and expense financial data, but also spur banks to rethink their pricing differentiation strategies under the VAT regime, and to consider revisions to relevant contracts, business processes, and IT systems.
