KPMG: China’s banks post strong profits

By Rob Starr, Content Manager, Big4.com

According to KPMG’s latest annual survey of the mainland banking sector,  China’s banks posted strong growth for 2011 and the first half of 2012, mainly driven by a growing deposit base, increased net interest margins and growth in non-interest income .KPMG’s sixth annual Mainland China Banking Survey covers a record 197 banks, representing 88 percent of all banking assets in China. This year’s survey also includes the financial information for 33 of the 37 foreign banks that were locally incorporated prior to year-end 2011.

The variance in net interest margin (NIM) across banks is also greater in 2011 than in 2010, indicating divergence in terms of lending practices and borrower bases across banks. While only 24 banks released NIM figures for 2011, these banks represent nearly 70 percent of total banking sector assets. The report also highlights the strong performance of locally incorporated foreign banks in China, which have outperformed their domestic peers by most metrics. While still modest as a percentage of total banking assets in China, foreign bank assets now account for 1.95 percent of total banking assets, up from 1.87 percent in 2010. Notably, asset growth for foreign banks from 2010 to 2011 was 24 percent, outpacing the 18 percent average growth of the overall sector.

For the 187 banks that supplied lending and deposit figures for both 2010 and 2011, the survey revealed loan growth of 15.7 percent and deposit growth of 13.1 percent. While total operating expenses across the sector are up 25 percent from 2010, there are indications of improving operating efficiency at the banks. The cost income ratio averaged out across all of the banks surveyed was 36 percent in 2011, down from 40 percent in 2010. Notably, of the 179 banks that released related figures, 135 saw a decrease in their cost income ratio.