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Banking Newsletter Analysis of China’s Top 10 Listed Banks’ Results for the Third Quarter of 2014
November 2014
www.pwccn.com
Editor-in-chief: Elaine Wang
Deputy-editor-in-chief: Ray Chen, Jeff Deng
Special focus: Ray Chen
Macro review: Jeff Deng
Operating performance: Elsie Gao, Ray Chen
Financial position and capital management: Jo Liu, Emma Zhang, Daisy Wu, Elsie Gao
Banking Newsletter Editorial Team:
Advisory Board:
Raymond Yung, Jimmy Leung, Margarita Ho, and Richard Zhu
普华永道
Introduction
We are pleased to present the 21st edition of our Banking Newsletter, a quarterly publication showing PwC’s analysis of China’s Top 10 Listed Banks’ performance.
The Top 10 Listed Banks, as defined by the China Banking Regulatory Commission (CBRC), are:
Large commercial banks
Industrial and Commercial Bank of China Limited (ICBC)
China Construction Bank Corporation (CCB)
Agricultural Bank of China Limited (ABC)
Bank of China Limited (BOC)
Bank of Communications Co., Ltd. (BOCOM)
Joint-stock commercial banks (JSCBs)
China Merchants Bank Co., Ltd. (CMB)
Shanghai Pudong Development Bank Co., Ltd (SPDB)
Industrial Bank Corporation Limited (CIB)
China CITIC Bank Corporation Limited (CITIC)
China Minsheng Banking Corporation Limited (CMBC)
The newsletter presents the financial position and operating performance of the Top 10 Listed Banks in the first three quarters of 2014. The total assets of the Top 10 Listed Banks by the end of the third quarter of 2014 accounted for 74.32% of China’s commercial banking sector. The Top 10 Listed Banks are presented according to the size of their total assets as of 31 December 2013.
Unless otherwise noted, all of the information in the Newsletter was obtained from publicly available sources (e.g. annual reports of listed banks and statistics from regulators). All the figures are prepared according to PRC Accounting Standards and stated in RMB (except for ratios).
For more information, please ask your PwC contacts or any of the Banking and Capital Markets Contacts listed in the Appendix.
November 2014 3
Banking Newsletter
PwC
普华永道
Table of Contents
Special focus: Overview of the Top 10 Listed Banks’ cross-boarder M&A activities 5
Macro overview 11
Analysis of operating performance 15
Analysis of financial position and capital management 19
Appendix 29
4 November 2014 Banking Newsletter
PwC
普华永道 5
Special focus : Overview of the Top 10 Listed Banks’ cross-border M&A activities
• 2014: momentum regained
• Seeking controlling interests, eyes on emerging markets
• Features and risk factors for M&A
• Overview of Top 10 Listed Banks’ cross-boarder M&A
November 2014
5
Banking Newsletter
PwC
普华永道 6 November 2014
2014: momentum regained
If history is a guide, a global presence and diversified business portfolio have helped many international banks to thrive. That is why cross-border mergers & acquisitions (M&A) have been a vital part of Chinese commercial banks’ global strategy.
Another robust year by number of deals
Since 2006, Chinese banks have accelerated the pace of cross-border M&A, with both amount and volume increasing significantly. The number of deals for Chinese banks reached a record high in 2008. In the last two years, M&A activities have been gathering pace again, with the number of deals in 2014 hitting another record.
Graph 1 Cross-border M&A Deals by Amount and Volume
ICBC the most active buyer
Among the Top 10 Listed Banks, the largest tended to be most active in M&A markets. ICBC, the world’s largest bank by market capitalisation, is the most active buyer. Compared to setting up overseas networks, M&A is a more effective way of expanding overseas. ICBC prefers to grow its international business through M&A.
Graph 2 Cross-border M&A Amounts and Volume by Banks
0
1
2
3
4
5
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2006 2007 2008 2009 2010 2011 2012 2013 2014
Amount Volume
Amount (In millions) Volume (No. of deals)
Source: Annual reports and other disclosures of the Top 10 Listed Banks
0
2
4
6
8
10
12
-
10,000
20,000
30,000
40,000
50,000
60,000
ICBC CCB BOC CMB SPDB CMBC
Amount Volume
Amount (In millions) Volume (No. of deals)
Source: Annual reports and other disclosures of the Top 10 Listed Banks
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普华永道 7 November 2014
Seeking controlling interests, eyes on emerging markets
Seeking controlling interests
A close examination of the Top 10 Listed Banks’ overseas M&A activities reveals that most banks prefer to acquire controlling interests. As a majority shareholder, banks can better leverage deals to strengthen their existing operations and avoid the risk of losing say. ICBC is a typical example, as most of its 10 M&A deals closed with it gaining controlling interest, except for the acquisition of Standard Bank of South Africa and SinoPac Holdings (of Taiwan) due to regulatory restrictions.
Graph 3 Cross-boarder M&A Deals by Holding Structure
Eyes on neighbouring area & emerging markets
Before 2006, Top 10 Listed Banks’ cross-boarder M&A were mainly in Greater China region and neighbouring areas like Southeast Asia, with small scale and less frequent. Since 2006, their M&A scope have expanded to America, Europe and Africa. The development pattern can be summarised as: rapid growth in Hong Kong, Macau and Taiwan, decent presence in Europe, active expansion in Southeast Asia, increased focus on emerging markets such as South America Africa.
Graph 4 Cross-boarder M&A Deals by Geographical Regions
70%
30%
With controlling interest
With non-controllinginterest
Source: Annual reports and other disclosures of the Top 10 Listed Banks
0
1
2
3
4
5
6
7
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
HK, Macau& Taiwan
NorthAmerica
Europe SoutheastAsia
SouthAmerica
Africa
Amount Volume
Amount (In millions) Volume (No. of deals)
Source: Annual reports and other disclosures of the Top 10 Listed Banks
Banking Newsletter
PwC
普华永道
Features and risk factors for M&A
8 November 2014
Features
With their corporate clients’ needs for financial services increasing, the Top 10 Listed Banks’ cross-border M&A activities are becoming more diversified, sophisticated and comprehensive:
CCB acquired a 72.00% stake in Banco Industrial e Comercial S.A. in 2014, which is the largest M&A deal with controlling interest for a Chinese bank;
SPDB acquired South Asia Investment Management Limited in Hong Kong in 2014;
CMB managed to get a wide range of licenses for securities, insurance, futures and trust business in Hong Kong by acquiring 53.1o% interest in Wing Lung Bank, marking the beginning of the bank’s business diversification in 2008;
ICBC acquired a 20.00% stake in Standard Bank of South Africa in 2006, which is the largest M&A deal with non-controlling interest for a Chinese bank;
BOC acquired Singapore Aircraft Leasing Enterprise Pte. Ltd at the end of 2006, and Heritage Fund Management in 2008.
Risk factors
Not all M&As ended up as expected, due to the inherent risks and complexity of each deal. A number of risk factors need to be considered:
Inadequate information obtained due to insufficient preliminary investigation and weak due diligence;
Insufficient diversification due to incomprehensive assessment;
Higher acquisition costs as a result of inappropriate timing;
Acquisition of non-controlling interest leads to the risk of losing say;
Synergy after M&A cannot be properly identified and realised;
Challenges of employee integration due to cultural differences between entities;
Failure of management integration after merger causes problems in operations;
Fluctuation of regulatory indicators, eg. capital adequacy, due to M&A;
Burden of compliance risks, as banking is a highly regulated industry.
Should you require any further information, or wish to further discuss cross-border M&A related matters, please do not hesitate to contact Mr. Nelson Lou, Advisory (M&A) Partner, at +86 (10) 6533 2003.
Banking Newsletter
PwC
普华永道
Overview of Top 10 Listed Banks’ cross-boarder M&A
9
An overview of Top 10 Listed Banks’ cross-boarder M&A deals as follow:
November 2014
Listed
banks Year Price Acquiree Economy %
Controlling
interest?
ICBC 2006 No data Bank Halim Indonesia Indonesia 90.00% Yes
ICBC 2007 USD5.46 billion Standard Bank of South Africa South Africa 20.00% No
ICBC 2007 MOP4.68 billion Seng Heng Bank of Macau Macau 79.93% Yes
ICBC 2010 CAD15.71 million
Industrial and Commercial Bank
of China Canada (the former
Bank of East Asia Canada)
Canada 70.00%
10.00% Yes
ICBC 2011 USD140 million Bank of East Asia United States United States 80.00% Yes
ICBC 2011 THB3.55 billion ACL Bank of Thailand Thailand 97.24% Yes
ICBC 2011 USD600 million Standard Bank of Argentina Argentina 80.00% Yes
ICBC 2013 TWD18.7 billion SinoPac Holdings(Bank SinoPac) Taiwan 20.00% No
ICBC 2014 USD770 million Standard Bank Plc United Kingdom 60.00% Yes
ICBC 2014 USD316 million Tekstil Bankası A.Ş. Turkey 75.50% Yes
CCB 2006 HKD9.71 billion Bank of America Asia Hong Kong 100.00% Yes
CCB 2009 USD70 million AIG Finance (Hong Kong)
Limited Hong Kong 100.00% Yes
CCB 2013 USD100 million VTB Capital Russia 0.60% No
CCB 2014 BRL1.621 billion Banco Industrial e Comercial
S.A. Brazil 72.00% Yes
BOC 2006 USD965 million Singapore Aircraft Leasing
Enterprise Pte. Ltd Singapore 100.00% Yes
BOC 2008 EUR236 million La Compagnie Financiere
Edmond de Rothschild Banque France 20.00% No
BOC 2008 CHF9 million Heritage Fund Management Swiss 30.00% No
CMBC 2008 USD126 million United Commercial Bank(UCBH) United States 9.90% No
CMB 2008 HKD19.3 billion Wing Lung Bank Ltd. Hong Kong 53.12% Yes
SPDB 2014 HKD8.5 million South Asia Investment
Management Limited Hong Kong 100.00% Yes
Source:: Annual Report of Top 10 Listed Banks and Related Announcements
Banking Newsletter
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Banking Newsletter
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November 2014 Banking Newsletter
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November 2014
普华永道 11
Macro overview
• China’s economy feeling the pinch, while growth continued to slow globally
• Interest rates fluctuated despite ample liquidity
November 2014 Banking Newsletter
PwC
普华永道
China’s economy feeling the pinch, while growth continued to slow globally
The global economy continued to recover at different paces in 3Q 2014: the US economy recovered sufficiently to end quantitative easing (QE); Japan’s output is weak; Europe is on the brink of recession.
China’s growth was still the strongest among emerging economies. Gross Domestic Product (GDP) growth in the first three quarter of 2014 remained 7.40%, the same as for the first two quarters. On a quarterly basis, growth in 2014 Q3 slowed slightly to 7.30% from 7.50% in 2Q.
While China’s growth remained stable, investment and consumption slowed in the first three quarters.
Real estate experienced the most significant slowdown in 3Q 2014, which led to the policy easing by People’s Bank of China (PBoC) and China Banking Regulatory Commission (CBRC) to lift purchasing restrictions and review the definition of “second house”. Mortgage-backed securities (MBS) were encouraged, too.
12 November 2014
Graph 5 China Quarterly GDP Growth Trend
Graph 6 FAI, Real estate Investment and Retail Sales Growth
1998 Q2, 7.20% 2009 Q1,
6.60%
2014 Q3, 7.30%
0%
2%
4%
6%
8%
10%
12%
14%
16%
Source:National Bureau of Statistics
8%
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
Retail sales
Real estate investment
Growth continue to slow
Source:National Bureau of Statistics
Fixed assets investment
Banking Newsletter
PwC
普华永道
Liquidity ample; interest rates fluctuated slightly
Price levels were stable in 3Q 2014, with ample liquidity in the market. Open market operations of PBoC show that the bank had been pumping cash into the market (the amount of money injected was greater than that taken out) in the previous two quarters, with the net amount injected in 3Q totalling 173 billion.
PBoC recently disclosed it provided a Medium-term Lending Facility (MLF) of 500 billion to large commercial banks and the largest joint-stock banks in September, aiming at bring down borrowing costs and overall financing rates.
Market interest rates
fluctuated slightly in 3Q
2014. Weighted average
Shanghai interbank offering
rate (SHIBOR) and bond-
pledged repos went down
slightly in September but
still higher than it was in
June.
13 November 2014
Graph 8 Weighted-average SHIBOR and Bond-pledged repo rate
Graph 7 Net Effect of Open Market Operations by PBoC
Note: The amount in the above graph is the net value of open market operations, i.e. the difference
between money injected (maturity of central bank bills and repo agreements, reverse repos) and
money taken out (repo agreements, issuing of central bank bills and maturity of reverse repos). A
positive amount implies net money injection and negative indicates net money take-out.
-6
503
814
127
-706
533
355
-68
-524
369
173
(900)
(700)
(500)
(300)
(100)
100
300
500
700
900
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
In billions
2013 2014
Source: China Foreign Exchange Trade System
2%
3%
4%
5%
6%
7%
SHIBOR bond-pledged repo
Source: China Foreign Exchange Trade System
Banking Newsletter
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普华永道
Banking Newsletter
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November 2014 Banking Newsletter
PwC 14 November 2014
普华永道 15
Analysis of operating performance
• Profit growth slowed; cost control remained strong
• ROE dropped by 0.58 ppts QoQ; NIM narrowed slightly
• Negative growth for intermediary business
November 2014 Banking Newsletter
PwC
普华永道
Profit growth slowed; cost control remained strong
In 3Q 2014, the Top 10
Listed Banks realised
aggregate net profit of RMB
301.2 billion, 7.02% more
than in Q3 2013. The year
on year (YoY) growth rate
was lower than that of Q3
2013 (12.15%) and Q2 2014
(9.00%).
Profit growth for the Top 10
Listed Banks has dropped to
single digits since Q2 2014,
which indicates that the
turning point for profit
growth is approaching.
16
November 2014
In 3Q 2014, the Top 10 Listed Banks continued to improve their cost controls. All of the eight banks that disclosed their cost to income ratio saw a reduction, with the average level falling to below 27% and 1 percentage point lower on a YoY basis.
Graph 10 Change in Cost-to-income ratio
Note: SPDB and CITIC did not disclose cost-to-income ratios for the
first three quarters of 2014 and 2013
Graph 9 Net profit growth trend of The Top 10 Listed Banks
15.21%
12.15%
7.02%
4%
6%
8%
10%
12%
14%
16%
18%
-
500
1,000
1,500
2,000
2,500
3,000
3,500
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
Net Profits YoY Growth
Net profit (in 100 millions) Slowdown in profit growth
indicates the approaching
turning point
YoY growth
ICBC CCB
ABC
BOC
BOCOM
CMB
CIB
CMBC
20%
25%
30%
35%
2014 Q1-3Q 2013 Q1-3Q
Banking Newsletter
PwC
普华永道
ROE dropped by 0.58 ppts QoQ; NIM narrowed slightly
In the first three quarters of
2014, the weighted-average
ROE declined by 0.58
percentage points to 20.71%
as compared with 21.29% in
the first half of 2014.
Graph 11 Change in ROE for the Top 10 Listed Banks
Graph 12 Change in NIM for 7 Listed Banks Net interest margin (NIM) was disclosed by seven of the listed banks for the first three quarters of 2014. Based on stable yields of inter-bank assets being sustained, the weighted-average NIM decreased by just 0.01 percentage point compared with that of the first half of 2014. It is increased by 0.04 percentage point compared to the first three quarters of 2013.
Note: ICBC, SPDB and CIB did not disclose NIM for the three quarters of 2014. The
data were all annualised.
November 2014 17
ICBC
CCB ABC
BOC
BOCOM
CMB
SPDB
CIB
CITIC
CMBC
14%
16%
18%
20%
22%
24%
26%
2014 Q1-Q3 2014 1H
Note: To ensure the consistency, the data of SPDB and CIB was
annualised
CCB
ABC
BOC
BOCOM
CMB
CITIC
CMBC
2.0%
2.2%
2.4%
2.6%
2.8%
3.0%
2014 Q1-Q3 2014 1H
Banking Newsletter
PwC
普华永道 18
November 2014
Negative growth for intermediary business
For 2014 3Q, the fees and commissions income of the Top 10 Listed Banks were RMB 134,487 billion, decreasing by 13.94% on a quarter on quarter (QoQ) basis, while it increased by 15.06% in Q3 2013 on a QoQ basis. In 3Q 2014, the fees and commissions income for most of the banks fell on a QoQ basis, partially due to the coming into force of Interim Measures for the Management of the Service Prices of Commercial Banks, jointly issued by PBoC and National Development and Reform Commission (NDRC).
Graph 13 Net Fees & Commissions Income Growth, QoQ
ICBC
CCB ABC
BOC
BOCOM
CMB
CIB CMBC
SPDB
CITIC
-50%
0%
50%
100%
150%
200%
2014 Q3 2013 Q3
Banking Newsletter
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普华永道 19
Analysis of financial position and capital management
• QoQ decline in assets and liabilities
• Increases in both the NPL balance and NPL ratio
• PBOC provided liquidity support through MLF to the Large Commercial Banks
• QoQ increase of CARs driven by Tier-2 capital instruments
November 2014 Banking Newsletter
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普华永道
QoQ decline in assets and liabilities
Total assets of the Top 10 Listed Banks amounted to RMB 94.98 trillion at the end of 3Q 2014, increasing by 9.17% from the end of 2013. Growth continued to decline.
It was their first decline QoQ since 2012, due to pressure on deposits, CBRC’s regulatory requirement (No.127) on inter-bank business and off-balance-sheet business.
The decline for the five largest joint-stock commercial banks was 1.46% QoQ, while growth for the five large commercial banks was 0.03% QoQ.
20
Graph 14 Change of Total Assets at Top 10 Listed Banks
November 2014
As at the end of 3Q 2014, total liabilities of the Top 10 Listed Banks amounted to RMB 88.60 trillion, with an increase of 9.07% from the end of 2013.
However, total liabilities decreased by 0.66% from the end of June 2014, which was also the first fall since 2012, mainly due to the decrease in deposits.
QoQ growth rate
Total assets (in trillion)
0.67% 1.27%
-0.29%
-2%
0%
2%
4%
6%
8%
10%
-20
0
20
40
60
80
100
Total assets QoQ growth rate
0.32% 1.01%
-0.66%
-1%
1%
3%
5%
7%
9%
-10
10
30
50
70
90
Total liabilities QoQ growth rate
Total assets (in trillion) QoQ growth
Graph 15 Change of Total Liabilities of the Top 10 Listed Banks
Banking Newsletter
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普华永道
Slowdown in QoQ growth of loans on weak demand
As at the end of 3Q 2014, total loan balances for the Top 10 Listed Banks were RMB49.91 trillion, increasing by 9.81% as compared to the end of 2013. The growth declined compared to 3Q 2013 (10.56%).
Due to the slowdown of growth in deposits and weak demand in the market, total loan balances increased at a lower rate of 12.05% year-on-year, as compared to 13.13% in 3Q 2013 and 12.78% in 2Q 2014.
In 2014 3Q, the loan growth rate of the Top 10 Listed Banks declined compared to the first half of 2014 due to the impact of high pressure on maintaining customer deposits, CBRC’s regulatory requirement (No.127) on inter-bank business, development of off-balance-sheet business and seasonal fluctuation of credit supply.
21
Graph 16 YoY Growth of Loan Balances
Graph 17 QoQ Growth of Loan Balances
November 2014
13.90%
13.13% 12.05%
0%
5%
10%
15%
20%
-
5
10
15
20
25
30
35
40
45
50
Total loans YoY growth rate
Loan balances (in trillions) YoY growth
ICBC
CCB
ABC
BOC
BOCOM
CMB
SPDB
CIB
CITIC CMBC
0%
1%
2%
3%
4%
5%
2014 Q3 2014 Q2
Banking Newsletter
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普华永道
Increases in both the NPL balance and NPL ratio
As at the end of 2014 Q3, the NPL ratio reached 1.13%, an increase of 0.07 percentage point compared to the end of 2014 Q2.
The NPL increase was due to slower economic growth, which leads to a decline in market demand and increase in credit risks for pro-cyclical industries and small and medium enterprises. These sectors were vulnerable to economic downturn. Credit risk of industries with excess capacity was also on the rise as a result of restructuring of sectors.
22
Graph 19 Changes of NPL Ratios
Graph 18 Changes of NPL Balance at the Top 10 Listed Banks As at the end of 3Q 2014, the Top 10 Listed Banks experienced increases in both the NPL ratio and balances, as the quality of credit assets deteriorated.
The total amount of NPLs amounted to RMB564.05 billion at the end of 3Q 2014 which represented an increase of RMB 44.04 billion or 8.47% from the end of 2Q 2014.
NPL growth for the five largest joint stock commercial banks (12.13%) was still higher than that of the five large commercial banks (7.63%).
November 2014
0%
10%
20%
30%
40%
50%
0
200
400
600
800
1,000
1,200
2014-09-30 2014-06-30 QoQ growth
NPL balances (in 100 million) QoQ growth
ICBC
CCB
ABC
BOC
BOCOM
CMB
SPDB CIB
CITIC
CMBC
0.90%
1.00%
1.10%
1.20%
1.30%
1.40%
2014-09-30 2014-06-30
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普华永道
The initial impact of new regulation on interbank business
23
Graph 20 Movement in composition investments
Five large commercial banks
Five large Joint-stock Commercial Banks
November 2014
The proportion of each investment remained stable for the five large commercial bank at the end of 3Q 2014 relative to the end of 2Q 2014. Held-to-maturity remained the most popular investment and accounted for more than 50% of investment portfolios.
There was some change in the investment mix for the five largest joint-stock commercial banks, as investment classified as receivables decreased slightly from 50.24% as at 30 June 2014 to 49.36% as at 30 September 2014.
CBRC’s regulations of No.27 which regulated inter-bank businesses, such as trust beneficiary right products and asset management schemes of financial institutions, had some impact on the banks’ investment structure. The proportion of investment in receivables of CMB and CITIC decreased while that of SPDB and CMBC increased relative to 30 June 2014.
58%
58%
64%
64%
47%
49%
53%
52%
58%
59%
26%
25%
23%
22%
25%
24%
30%
27%
21%
21%
8%
9%
8%
9%
11%
10%
4%
4%
7%
7%
8%
8%
5%
5%
17%
17%
13%
17%
14%
13%
2014.09.30
2014.06.30
2014.09.30
2014.06.30
2014.09.30
2014.06.30
2014.09.30
2014.06.30
2014.09.30
2014.06.30
Held to maturity Available for sale
Financial assets at fair value Receivables
BO
CO
M B
OC
A
BC
C
CB
I
CB
C
25%
24%
13%
15%
20%
19%
19%
17%
36%
36%
29%
26%
19%
18%
34%
36%
21%
20%
30%
33%
4%
4%
3%
4%
4%
3%
2%
2%
6%
7%
42%
46%
65%
63%
42%
42%
58%
61%
28%
24%
2014.09.30
2014.06.30
2014.09.30
2014.06.30
2014.09.30
2014.06.30
2014.09.30
2014.06.30
2014.09.30
2014.06.30
Held to maturity Available for saleFinancial assets at fair value Receivables
CM
BC
C
ITIC
C
IB S
PD
B C
MB
Banking Newsletter
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普华永道
Negative QoQ growth in deposits
As at the end of 3Q 2014, total deposits of the Top 10 Listed Banks amounted to RMB69.56 trillion. This is an increase of 6.89% from the end of 2013, but a decrease of 1.98% from the end of June 2014, which is the first negative QoQ growth since 2012.
In September 2014, the CBRC, MoF and PBOC jointly released [2014]No. 236 to monitor banks’ deposit stability and deviation, aiming at to constrain aggressive deposit taking activities. Negative growth in deposits was partly due to this rule.
24 November 2014
With the impact of the above regulation, most of the Top 10 Listed Banks showed negative growth in deposits in 3Q 2014, compared to 2Q.
Graph 22 Changes of deposits’ quarterly growth
Graph 21 Growth trend of total deposits, QoQ
1.60% 1.37%
-1.98%
-2%
0%
2%
4%
6%
8%
10%
-10
0
10
20
30
40
50
60
70
Total customer deposit QoQ growth
Total Deposits (in Trillions) QoQ growth rate
ICBC
CCB ABC
BOC
BOCOM
CMB
SPDB CIB CITIC
CMBC
-8%
-4%
0%
4%
8%
12%
16%
2014 Q3 2014 Q2
Banking Newsletter
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普华永道
Proportion of time deposits increased; QoQ loan-to-deposit ratio grew slightly
As at the end of 3Q 2014, six banks that disclosed the breakdown of deposits saw an increase in the proportion of time deposits compared to the end 2Q 2014.
25
Graph 23 Change of deposit portfolio
As at the end of 3Q 2014, five banks saw an increase in loan-to-deposit ratio as compared to the end of June 2014. This is probably due to the fall in deposits in 3Q 2014.
Graph 24 QoQ Change of Loan-to-deposit Ratio
Note: CMB,CIB,CITIC and CMBC did not disclose their loan-to-deposit ratios as at the
end of third quarter of 2014. ICBC,BOC,BOCOM,SPDB disclosed their loan-to-deposit
ratios according to CBRC [2014] 34.
November 2014
Note: The time deposits of CMB represent its bank level balance, while those of other
banks represented group level balances. In addition, BOC, CITIC and CMBC offered
no information on deposit structure in 2014 Q3 disclosures.
52% 50%
47% 46%
43% 42%
54% 57%
53% 50%
53% 52%
54% 51%
46% 48%
50% 51%
51% 52%
46% 43%
47% 50%
31%
33%
34% 37%
2% 2%
3% 3%
6% 6%
16% 15%
12% 12%
2014.09.30.2014.06.30.
2014.09.30.2014.06.30.
2014.09.30.2014.06.30.
2014.09.30.2014.06.30.
2014.09.30.2014.06.30.
2014.09.30.2014.06.30.
2014.09.30.2014.06.30.
ICBC
CCB
ABC
BOC
BOCOM
CMB
SPDB
CIB
CITIC
CMBC
60%
65%
70%
75%
2014-09-30 2014-06-30
Banking Newsletter
PwC
CIB
S
PD
B C
MB
BO
CO
M A
BC
C
CB
IC
BC
Time deposit Demand deposit Others
普华永道
PBoC provided liquidity support through MLF to the large commercial banks
26
As at the end of 3Q 2014, the five large commercial banks had relatively higher percentages of borrowings from the central bank. The borrowings were doubled as compared to the end 2Q 2014 with an increase of RMB368.64 billion.
The above change reflected the impact of liquidity provided by PBOC to the large commercial banks during September.
According to the China Monetary Policy Report ssued by the PBoC, the central bank introduced a new tool of what was called MLF in September. Through this new tool an aggregate of RMB 500 billion was provided to the large commercial banks and join-stock commercial banks in an attempt to bring down the overall borrowing costs (including banks lending rates) and in turn support the real economy.
Graph 25 Change of composition of inter-bank liabilities
November 2014
45%
52%
69%
55%
55%
48%
19%
21%
12%
24%
2014.06.30
2014.09.30
2014.06.30
2014.09.30
Fiv
e larg
eJS
CB
s
Fiv
e larg
ecom
me
rcia
lban
ks
Placements from banks and other financial institutions
Financial assets sold under repurchase agreements
Borrowings from the central bank
Banking Newsletter
PwC
普华永道
QoQ increase of CARs driven by Tier-2 capital instrument
27
At the end of 3Q 2014, the Core Tier-1 Capital Adequacy Ratios (CARs) of the Top 10 Listed Banks as calculated on the basis of the Administrative Rules for Capital Management of Commercial Banks (Provisional) generally increased from 2Q 2014. The increase was primarily due to the higher growth rate in accumulation of retained earnings than that of risk-weighted assets.
Graph 26 Comparison of Core Tier-1 CAR, QoQ
At the end of 3Q, the weighted-average CAR of the Top 10 Listed Banks was 13.20%, up by 0.61 percentage point from 2Q.
ICBC, CCB, ABC, BOC, BOCOM and CITIC issued Tier-2 capital bonds during 3Q which led to the increase in their CARs. In October 2014, BOC became the first Chinese bank to issue offshore USD preference shares (for a total amount equivalent to RMB39.94 billion). With more and more banks starting to issue preference shares, banks will further improve their CARs.
Graph 27 Comparison of CAR, QoQ
November 2014
ICBC CCB
ABC
BOC
BOCOM
CMB
SPDB
CIB CITIC CMBC
8%
9%
10%
11%
12%
13%
2014-09-30 2014-06-30
ICBC
CCB
ABC
BOC BOCOM
CMB
SPDB
CIB
CITIC
CMBC
10%
11%
12%
13%
14%
15%
2014-09-30 2014-06-30
Banking Newsletter
PwC
普华永道
Banking Newsletter
28
November 2014 Banking Newsletter
PwC 28 November 2014
普华永道
Banking Newsletter 29
Appendix
• Financial highlights of the Top 10 Listed Banks
• Banking and Capital Markets Contacts
• PwC Offices in China
November 2014
PwC
普华永道
Financial highlights of the Top 10 Listed Banks
30
In RMB millions ICBC CCB ABC BOC BOCOM CMB SPDB CIB CITIC CMBC
1. Net Interest Income 362,934 323,237 317,793 238,775 102,380 82,267 71,508 69,954 70,048 67,405
2. Non-interest income 125,655 105,806 76,173 107,559 32,789 42,760 18,265 20,896 22,520 32,511
2.1. Net fee and commission
income 100,885 83,801 65,920 72,078 22,984 34,246 15,647 19,665 18,835 27,810
2.2. Other non-interest
income 24,770 22,005 10,253 35,481 9,805 8,514 2,618 1,231 3,685 4,701
3. Operating income 488,589 429,043 393,966 346,334 135,169 125,027 89,773 90,850 92,568 99,916
4. Operating expenses 201,084 185,235 197,728 168,369 68,650 65,153 44,039 41,384 49,552 50,754
5. Operating and
administrative
expenses 118,873 104,254 121,332 93,462 36,549 35,127 20,665 19,475 25,282 30,486
6. Business tax and
surcharges 30,750 25,983 21,718 19,699 9,731 7,783 6,060 6,592 6,496 6,647
7. Other operating cost 19,005 15,574 9,657 16,130 4,061 245 266 197 No data 442
8. Asset impairment losses 32,456 39,424 45,021 39,078 18,309 21,998 17,048 15,120 17,774 13,179
9. Operating profit 287,505 243,808 196,238 177,965 66,519 59,874 45,734 49,466 43,016 49,162
10. Profit before tax 288,231 245,233 197,271 178,335 67,015 60,372 45,859 49,780 43,093 49,349
11. Income tax expenses 67,376 54,548 44,766 41,537 15,321 14,453 10,692 11,212 10,240 11,919
12. Net profit 220,855 190,685 152,505 136,798 51,694 45,919 35,167 38,568 32,853 37,430
In RMB millions ICBC CCB ABC BOC BOCOM CMB SPDB CIB CITIC CMBC
Total Assets 20,150,956 16,735,863 15,959,249 15,427,957 6,212,718 4,722,648 3,956,642 3,995,577 4,045,887 3,769,341
Total loans and
advances to
customers 10,603,544 9,102,547 7,650,922 8,256,032 3,396,875 2,384,121 1,920,895 1,450,544 2,070,721 1,714,728
Net investment 4,441,560 3,567,684 3,557,179 2,533,324 1,102,653 994,893 1,063,259 875,259 885,337 461,698
Cash and deposits with
central bank 3,472,425 2,737,700 2,810,852 2,560,566 932,196 590,593 489,574 433,425 536,648 438,533
Deposits and
placements with
banks and other
financial institutions
582,741 600,335 950,130 1,050,306 340,462 275,626 173,492 190,676 180,145 271,437
Financial assets held
under resale
agreements 432,604 317,706 566,629 330,027 155,447 371,451 223,287 909,811 282,134 657,257
Interest receivable N/A 93,503 97,807 78,882 34,459 23,892 14,963 25,318 24,155 15,490
Others 21,825,170 316,388 325,730 618,820 250,626 82,072 71,172 110,544 66,747 210,198
Total Liabilities 18,718,581 15,527,684 15,000,556 14,381,700 5,754,838 4,420,250 3,722,143 3,758,661 3,788,202 3,528,538
Deposits from
customers 15,339,964 12,982,406 12,638,575 11,047,285 4,116,546 3,265,520 2,688,621 2,205,228 2,875,725 2,397,690
Deposits and
placements from
banks and other
financial institutions
1,429,869 1,260,899 1,118,068 2,081,343 1,118,686 866,642 727,765 1,215,196 649,442 782,112
Financial assets sold
under repurchase
agreements 310,136 1,129 35,644 32,714 176,736 48,179 39,556 136,283 52,725 50,037
Debt securities issued 268,726 434,863 331,208 282,002 116,757 101,047 105,410 123,378 126,959 129,829
Others 1,369,886 848,387 877,061 938,356 226,113 138,862 160,791 78,576 83,351 168,870
Table 1 Income Statements
Table 2 Balance Sheet
November 2014 Banking Newsletter
PwC
普华永道
Financial highlights of the Top 10 Listed Banks (cont’d)
Banking Newsletter 31
November 2014
ICBC CCB ABC BOC BOCOM CMB SPDB CIB CITIC CMBC
Profitability
Return on assets (ROA) 1.51% 1.58% 1.33% 1.24% 1.13% No data 0.92% No data 1.14% No data
Return on equity (ROE) 21.52% 22.14% 22.34% 18.03% 15.58% 21.33% 15.92% 17.54% 18.10% 22.71%
Net interest spread No data No data 2.75% No data 2.21% 2.30% No data No data No data No data
Net interest margin No data 2.80% 2.91% 2.26% 2.40% 2.50% No data No data 2.37% 2.61%
Cost-to-income ratio 24.33% 25.21% 30.80% 26.99% 27.39% 28.10% No data 21.65% No data 30.51%
Asset quality
NPL Ratio 1.06% 1.13% 1.29% 1.07% 1.17% 1.10% 0.96% 0.99% 1.39% 1.04%
NPL balances (in millions) 115,471 105,320 103,466 90,695 40,872 26,923 18,977 14,774 29,428 18,124
Provision Coverage ratio 216.60% 234.47% 335.07% 207.70% 201.29% 227.99% 267.90% No data 181.49% 199.96%
Capital adequacy
Core Tier 1 capital
adequacy ratio 11.79% 11.65% 8.90% 10.51% 11.10% 10.35% 8.63% 9.40% 9.29% 8.73%
Capital adequacy ratio 14.20% 14.53% 12.38% 13.07% 13.80% 12.28% 10.91% 12.18% 12.99% 10.95%
Loan-to-deposit ratio 68.10% 72.02% 63.28% 71.65% 73.92% No data 70.85% No data No data No data
Table 3 Key Financial Ratios of the Top 10 Listed Banks
PwC
普华永道
Banking and Capital Markets Contacts
Assurance Advisory Tax
Raymond Yung – Beijing James Chang – Beijing Danny Yiu – Beijing
Tel: +86 (10) 6533 2121 Tel: +86 (10) 6533 2755 Tel: +86 (10) 6533 2787
raymond.yung@cn.pwc.com james.chang@cn.pwc.com danny.yiu@cn.pwc.com
Margarita Ho – Beijing Addison Everett – Beijing Oliver Kang – Beijing
Tel: +86 (10) 6533 2368 Tel: +86 (10) 6533 2345 Tel: +86 (10) 6533 3012
margarita.ho@cn.pwc.com addison.l.everett@cn.pwc.com oliver.kang@cn.pwc.com
Richard Zhu – Beijing William Gee – Beijing Matthew Wong – Shanghai
Tel: +86 (10) 6533 2236 Tel: +86 (10) 6533 2269 Tel: +86 (21) 2323 3052
richard.y.zhu@cn.pwc.com william.gee@cn.pwc.com matthew.mf.wong@cn.pwc.com
Jimmy Leung – Shanghai William Yung – Shanghai Florence Yip – Hong Kong
Tel: +86 (21) 2323 3355 Tel: +86 (21) 2323 1984 Tel: +852 2289 1833
jimmy.leung@cn.pwc.com william.sw.yung@cn.pwc.com florence.kf.yip@hk.pwc.com
Michael Hu -Shanghai Matthew Phillips – Hong Kong Assurance – Risk & Quality
Tel: +86 (21) 2323 2718 Tel: +852 2289 2303
Michael.hu@cn.pwc.com matthew.phillips@hk.pwc.com Tracy Chen – Shanghai
Tel: +86 (21) 2323 3070
Shirley Yeung – Guangzhou Chris Chan – Hong Kong tracy.yh.chen@cn.pwc.com
Tel: +86 (20) 3819 2218 Tel: +852 2289 2824
shirley.yeung@cn.pwc.com chris.st.chan@hk.pwc.com Nigel Dealy – Hong Kong
Tel: +852 2289 1221
Charles Chow – Shenzhen Nelson Lou - Beijing nigel.dd.dealy@hk.pwc.com
Tel: +86 (755) 8261 8988 Tel:+86 (10) 6533 2003
charles.s.chow@cn.pwc.com nelson.lou@cn.pwc.com
Banking Newsletter
PwC 32 November 2014
普华永道
PwC Offices in China
Beijing Shanghai Hong Kong 26/F, Office Tower A, Beijing Fortune Plaza 11/F, PricewaterhouseCoopers Center, 2 Corporate Avenue 22/F, Prince's Building
7 Dongsanhuan Zhong Road, Chaoyang District 202 Hu Bin Road, Huangpu District Central, Hong Kong
Beijing, P.R.C. Shanghai Tel: +852 2289 8888
Zip: 100020 Zip: 200021 Fax: +852 2810 9888
Tel: +86 (10) 6533 8888 Tel: +86 (21) 2323 8888
Fax: +86 (10) 6533 8800 Fax: +86 (21) 2323 8800
Shenzhen Guangzhou Tianjin 34/F, Tower A, Kingkey100 18/F, PricewaterhouseCoopers Center 36/F, The Exchange Tower Two,
5016 Shennan East Road, Luohu District 10 Zhujiang Xi Road, Pearl River New City, Tianhe District 189 Nanjing Road, Heping District
Shenzhen, P.R.C Guangzhou, P.R.C. Tianjin, P.R.C.
Zip: 518001 Zip: 510623 Zip: 300051
Tel: +86 (755) 8261 8888 Tel: +86 (20) 3819 2000 Tel: +86 (22) 2318 3333
Fax: +86 (755) 8261 8800 Fax: +86 (20) 3819 2100 Fax: +86 (22) 2318 3300
Dalian Qingdao Hangzhou 8F Senmao Building 37/F, Tower One, HNA IMC Center Unit 3205, Canhigh Center
147 Zhongshan Road, Xigang District 234 Yanan Third Road, Shinan District 208 North Huancheng Rd
Dalian, P.R.C. Qingdao, P.R.C. Hangzhou, P.R.C.
Zip: 116011 Zip: 266071 Zip: 310006
Tel: +86 (411) 8379 1888 Tel: +86 (532) 8089 1888 Tel: +86 (571) 2807 6388
Fax: +86 (411) 8379 1800 Fax: +86 (532) 8089 1800 Fax: +86 (571) 2807 6300
Chongqing Ningbo Xiamen Room 1905, 19/F Metropolitan Tower Room 1203, Tower E, Ningbo International Financial Center Unit B, 11/F, International Plaza
68 Zou Rong Road 268 Min An Road East, Jiangdong District 8 Lujiang Road, Siming District
Chongqing, P.R.C. Ningbo, P.R.C. Xiamen, P.R.C.
Zip: 400010 Zip: 315040 Zip: 361001
Tel: +86 (23) 6393 7888 Tel: +86 (574) 8187 1788 Tel: +86 (592) 210 7888
Fax: +86 (23) 6393 7200 Fax: +86 (574) 8187 1700 Fax: +86 (592) 210 8800
Suzhou Nanjing Xi'an
Room 1501, Genway Tower Unit 12A01, Nanjing International Center 7/F, D Block, Chang'an Metropolis Center
188 Wang Dun Road, Suzhou Industrial Park 201 Zhongyang Road, Gulou District 88 Nanguan Street
Suzhou, P.R.C. Nanjing, P.R.C. Xi'an, P.R.C.
Zip: 215028 Zip: 210009 Zip: 710068
Tel: +86 (512) 6273 1888 Tel: +86 (25) 6608 6288 Tel: +86 (29) 8469 2688
Fax: +86 (512) 6273 1800 Fax: +86 (25) 6608 6210 Fax: +86 (29) 8469 2600
Macau Wuhan 29/F, Bank of China Building Unit 04, 41/F Wuhan Wanda Center
323 Avenida Doutor Mario Soares, Macau 96 Linjiang Avenue, Jiyuqiao, Wuchang District,
Tel: +853 8799 5111 Wuhan, PRC
Fax: +853 8799 5222 Zip: 430060
Tel: +86 (27) 5974 5818
Fax: +86 (27) 5974 5800
Banking Newsletter
PwC 33 November 2014
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