Lenders seeking new ways to make profits
Chinese banks' total custodial assets surged by more than 50 percent year-on-year in 2014, an industry association revealed Thursday, which reflects the ongoing reforms in China's banking system, analysts said.
The total assets in Chinese banks' custody services jumped by 54.7 percent to 54.12 trillion yuan ($8.8 trillion) by the end of 2014, the Xinhua News Agency reported Thursday, citing a report released by the China Banking Association (CBA).
The banking industry's total revenue from the asset custody business also rose 17.8 percent year-on-year to 37.1 billion yuan in 2014, according to the CBA report.
Banks' asset custody business, which includes asset management and wealth management services, has been growing fast, at an average annual rate of more than 50 percent in the past three years, the Xinhua report said.
Given the general decline in banks' net interest margins caused by the narrow disparity between the lending and deposit rates, lenders have been eager to develop intermediary businesses such as asset custody services to boost their profits, Li Daxiao, chief economist with Shenzhen-based Yingda Securities Co, told the Global Times Thursday.
The fall in interest margins is partly due to the substantial progress seen in interest rate liberalization since 2013, according to a report issued by multinational professional services provider KPMG in November 2014.
However, Chinese banks have responded by updating their management methods to better control costs, as well as enhancing operational efficiency amid their rapid business expansion, according to the KPMG report.
"Banks are more and more eager to raise profits by offering wealth management products (WMPs)," Xie Ya-xuan, a macroeconomic research fellow with China Merchants Securities, told the Global Times Thursday.
"Due to the low interest rates on bank deposits, WMPs are also seen as an enticing alternative for depositors," Xie noted.
Of the total custodial assets, the volume of funds raised by banks reached 4.54 trillion yuan in 2014, while those raised by fund management firms reached 5.88 trillion yuan, Beijing-based financial news website cs.com.cn reported Thursday, citing data from the CBA report.
In addition, banks are launching their own Internet finance businesses, which can help them offer more custodial asset management solutions in the future, Xie noted.
Internet technology enables banks to offer greater marketing information and expand their transaction channels. It will also help banks popularize financial services and reduce the cost of information exchange and transactions, according to KPMG.
The KPMG report also noted that numerous kinds of Internet WMPs became popular in 2014, such as Yu'ebao - an online fund run jointly by an affiliate of e-commerce firm Alibaba Group and Tianhong Asset Management Co - and Caitong Baizhuan, launched by search giant Baidu Inc.
The total assets of Yu'ebao reached 711.72 billion yuan in the first quarter of 2015, up 23 percent from the previous quarter, according to data from Tianhong.
Internet services also offer more access to banks' wealth management sector, and have pushed Chinese banks to move from being conventional to innovative, Li noted.
However, new online funds like Yu'ebao are seen as higher-yielding alternatives to traditional savings accounts at commercial banks, the KPMG report noted. And as more people choose Internet financing, the profit margins of commercial banks will be squeezed in the future, it said.
