Revenue pressures to weigh on Chinese banks in 2023

Loan growth will remain tepid at 11%.

China’s banking sector will continue to face revenue pressures in 2023, amidst tepid loan demand and narrowing net interest margins (NIMs).

Loan growth is expected to remain tepid at 11%, similar to 2022, according to a report by Fitch Ratings.

Mortgage repricing to reduced rates and ongoing deposit competition amongst banks will further pressure the lenders’ NIMs, the ratings agency added. Sector NIM contracted to 1.9% in 2022 from 2.1% in 2021, reflecting weak retail loan demand.

Demand for residential mortgage and property-development loans is expected to stay weak and weigh on overall lending growth. 

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Property-development loans grew by only 3.7% year-on-year and 1.6% half-on-half at end-2022, the ratings agency noted. This is despite various policy efforts to encourage bank lending to the sector. 

Meanwhile, the rise of mortgage prepayments in the second half of 2022, as well as slow new home sales, led to a decline of 0.2% in the banking sector’s mortgage loan balance compared to the first half of the year.

On the other hand, Fitch expected lending to increase in infrastructure, micro and small enterprises (MSEs), and green loans. MSE loans notedly grew 24% in 2022, and accounted for 13% of all system loans made during the year.