Chinese banks face weaker growth in 2013

Interest rate reform will continue shaving margins.

Banking sector experts anticipate weaker net profits for Chinese banks next year as the effects of two consecutive rate cuts bolster reforms and put downward pressure on profit margins.

They expect net profits of China’s banks to slow to single-digit growth in 2013 as the entire banking sector faces more government regulation. Banks, especially small-and-medium-sized ones, will face more pressure from more market-oriented interest rates.

The People’s Bank of China ignited interest rate reform with two interest rate cuts in June and July. A particular target of the reforms are state-owned banks, especially the Big Four, whose oversized profits stem from a scandalous disregard for supporting private business firms.

The combined net profits of all 16 banks listed on the Shanghai and Shenzhen stock exchanges amounted to US$129.2 billion in the first three quarters of 2012, accounting for over half of the profits of the 2,493 listed firms.