Commercial banking in China is entering a new phase that is characterized by slower growth rates amid complex global economic environment. In 2012, total assets of the Chinese banking industry recorded 17.9% annual growth to RMB 133.6tn. Eastern China accounted for nearly 60% of the industry’s total assets.

There were a total of 3,747 financial institutions and 202,000 banking locations by the end of 2012. China Development Bank was the country’s largest lender of social housing projects and extended RMB 116.6bn in 2012. Foreign banks saw their net profits drop marginally while non-performing loans increased.

The central bank liberalized the country’s lending and saving rates in mid-2012, allowing a minimum net interest margin of 90 basis points for banks. Total lending rose to RMB 62.99tn and new lending expanded by RMB 8.2tn. Local government financing vehicles are considered a major source of risk due to extensive borrowings.

China’s systemically important financial institutions (SIFIs) and non-SIFIs need to meet the required capital adequacy ratios of 9.5% and 8.5%, respectively, by end-2013. PBC has opened up the capital market further through a technical guideline in May 2013 for Renminbi Qualified Foreign Institutional Investor or RQFII.

Key Points:

• China Banking Regulatory Commission announced a five-year plan for local banks to meet their counter-cyclical buffer in phases.

• China is planning the issuance of Basel III-structured bonds that carry a write-down to zero features.

• The country’s four largest lenders decreased lending in May 2013 due to lower demand and cautious lending policies