With 2019 hailed by China’s government as a crucial milestone for «building a moderately prosperous society in all respects», it’s encouraging to see the net profit of China’s 47 listed banks in 2018 continuing to grow.

By Steven Xu, Partner of Financial Services at Ernst & Young Hua Ming

As financial regulatory reforms open up new opportunities and challenges, what can banks do to keep this momentum going?

According to EY’s 12th annual report on China’s listed banks, the sector delivered a total net profit of 1,627.2 billion renminbi, an increase of 5.21 percent from 2017. The biggest driver was the growth in net interest income, which continues to account for more than 70 percent of operating revenue. At the same time, the total assets of listed banks reached 178.67 trillion renminbi, an increase of 6.46 percent from the prior year-end.

Ability to Adapt

However, this asset growth figure masks divergent results from different types of banks as their operations become less standardized. Winners were the national joint-stock commercial banks, whose positive growth rate reflects their ability to adapt to the complex and ever-changing environment.

In contrast, the growth of city commercial banks and rural commercial banks slowed down in 2018, with some of these institutions battling to transform and searching for a suitable development model.

Where to From Here?

In 2019, China’s deepening supply-side structural reform, financial reform, and the opening industry will present listed banks with new challenges and opportunities in an increasingly complex environment. In this context, success will come to those best able to:

  • Adapt to Change: As regulatory policies and accounting standards continue to change the environment, listed banks must adjust accordingly and respond to national strategies. Regulatory loosening and ministerial opinions that support innovation should continue to open up new growth avenues.

We see immediate opportunities for listed banks to improve customer loyalty by reshaping their products and services, creating a new multi-channel and intelligent retail finance model, and refining scenario-based marketing and cross-selling. To assist with this process, rather than innovating behind closed doors, listed banks should harness existing digital platforms and collaborate with fintechs.

  • Continue to Differentiate: In 2018, listed banks continued to promote the development of green finance, with the balance of green loans increasing by 16 percent, increased their focus on inclusive finance loans and launched open banking models. Such differentiating moves will serve the banks, adding revenue streams and creating new financial services experiences for clients.
  • Deepen Their Services: Listed banks have important opportunities to continue to serve the real economy, help prevent financial risks, and deepen innovation and transformation in their retail operations.

The key to listed banks’ sustainable growth is to continue to transform from a homogenous model, exploring the path of differentiated strengths suitable for their own development.