There appears to be fresh optimism surrounding China’s banking sector, especially after Moody’s Investors Service upgraded its outlook from negative to stable on July 27, which marks the first revision the ratings agency has made in two years. The move is largely the result of the stabilisation of bad debt levels, which the banking sector achieved following consistent quarters of rising nonperforming loans (NPLs). China’s government has adopted several measures to reverse the trend of mounting bad debt, such as debt-to-equity swaps and NPL transfers. Beijing’s recent efforts to crack down on shadow banking have also been well received.
The heightened optimism is additionally supported by the recently released annual report from the China Banking Association (CBA). The report observes that the growth of outstanding nonperforming loans of Chinese lenders eased in 2016, as did their NPL ratios; indeed, some even experienced reductions in their NPL ratios. Commercial banks have also managed to lend more money to small and micro businesses, as well as provide more individual housing loans, while reducing their exposure to those industries suffering from overcapacity. For this year and next, therefore, China’s banking sector is now expected to grow steadily, with NPL ratios modestly declining.
The outlook also appears to be improving slightly for Japan’s lenders after they mostly turned in positive earnings for the April-June quarter. Three of the country’s five biggest banking groups reported an increase in net profits for the period, thanks mainly to gains in trading operations and investment product sales, which outweighed losses in lending income. The biggest lender, Mitsubishi UFJ Financial Group, managed to record a whopping 53-percent rise in net profit, while Sumitomo Mitsui Financial Group achieved a net-profit rise of 31.1 percent.
India’s banks continue to be weighed down by the substantial pile of bad loans on their books. With the banking sector’s total ratio of nonperforming assets currently standing at 9.6 percent, lenders are struggling to expand lending. The situation is particularly problematic at public-sector banks, at which the rate of bad loans they wrote off during the financial year ended March 2017 came in at an alarming 41 percent higher than the previous year’s. While such write-offs have been consistently rising during the last few years, banks’ overall profitability has plunged during the same period.
Second-quarter earnings for Singaporean banks were recently announced, and it appears that the Southeast Asian nation’s banking sector is now over the worst of its problems. Results have indicated that loan growth was solid, income from wealth-management activity expanded, and there was a reduction in the level of new bad loans during the three-month period.
While Australia’s major lenders continue generating solid earnings growth, much of the recent focus has surrounded issues pertaining to the conduct of its biggest mortgage lender, the Commonwealth Bank of Australia (CBA). Despite notching up annual profits of A$9.88 billion, 4.6 percent higher than the previous year and the eighth consecutive year of record profits, the CBA is facing legal action over its failure to comply with Australia’s anti-money-laundering laws. The Australian government’s Treasurer Scott Morrison has made clear that the government has put all options on the table in order to deal with the CBA failure, although he has ruled out implementing a broader royal commission into the banking sector.
Elsewhere, mortgage lending continues to provide a boon for Australian banks. For instance, an increase in National Australia Bank’s mortgage rate has boosted the lender’s third-quarter cash profit by 5 percent to $1.7 billion.
New Zealand, meanwhile, has seen a modest 2.85 percent dip in quarterly profits after tax for the three months to March, from $1.24 billion to $1.2 billion, which reverses the previous quarter’s gains. According to KPMG’s analysis for the quarter to March, New Zealand’s nine banks recorded a dip as borrowing money from overseas became more costly and interest income contracted for the bigger banks, while shrinking margins impacted the country’s smaller lenders. A reduction in both net-interest income and non-interest income (with impaired asset expenses increasing) also played their parts.
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