Banks' profit expected to slow for 2013

The net profit of China's listed banks is expected to decline to single-digit growth in 2013 from double-digit growth last year, China's Banking Association said in a report Tuesday, indicating the potential impact on commercial banks of the country's liberalization of interest rates.

The average revenue growth of the country's 17 listed banks, including the "Big Four" State-owned banks, could slow to 10 percent, and the overall net profit of these banks is projected to grow by 8 percent for 2013, a sharp drop from 19 percent growth in 2012, according to the report.

The report forecast that the further liberalization of deposit rates could be a major factor in the profit decline.

The State Council has approved the central bank's plan to pursue interest rate reform, which includes lifting the ceiling for the five-year deposit rate, Caijing Magazine reported Monday, citing people with knowledge of the matter, but without elaborating on the schedule for the implementation.

Currently, five-year bank deposits account for less than 0.3 percent of bank deposits, Caijing reported. The financial authorities will also follow the US and Japan by allowing commercial banks to issue certificates of deposits, savings certificates entitling the bearer to receive interest, as part of the move toward interest rate liberalization for short-term deposits, according to the report.

The People's Bank of China (PBC), the central bank, was not available for comment Tuesday.

The PBC removed the floor for lending interest rates and allowed financial institutions to price loans by themselves from July 20, signaling China's new leaders' commitment to financial reform and enabling some borrowers to cut financing costs amid the economic slowdown.

However, the move has been seen as largely symbolic as banks, especially large State-owned ones, have strong pricing power given that companies rely on them heavily for financing. Therefore, banks have less need to compromise on the lending rates.

Once the ceiling for deposit rates - which are currently capped at 1.1 times the official benchmark rates - is lifted, banking profit will slide as competition will intensify and interest margins will narrow, said Ding Jianping, a finance professor at Shanghai University of Finance and Economics.

Ding told the Global Times that China needs more joint-stock banks, city commercial banks, private banks and rural banks before lifting the deposit rate ceiling, or the powerful State-run banks will still monopolize the sector, impeding the progress of interest rate reform.

Currently, large State-owned banks account for 43.3 percent of all banking assets, according to official data.

It would be better to push forward with interest rate reform when banks "are less reliant on interest earnings and companies have more options for financing, not only from bank loans but also from issuing bonds and raising funds in the stock market," said Sun Peng, a banking analyst at securities brokerage BOCI China.

China will not remove the deposit rate ceiling this year or next, stock information portal aastocks.com reported on July 24, citing Wu Xiaoling, a former vice governor of the PBC.

A sudden lifting of the deposit rate ceiling could result in deposit rate wars among financial institutions in a competition to woo depositors, she said.