Banking Sector in China Reviewed and Analysed by China's Economy & Policy-Gateway International Group20 Aug 2012 • by Natalie Aster
The high operating profits of banks have once again attracted widespread interest and led to wide-ranging discussions. In the context of declining profits and limited prospects within the real economy, high profits in the banking sector naturally lead to criticisms and accusations of trade monopoly, interest rate protection, arbitrary charges, and so on.
The new report "Why Does the Banking Sector Maintain High Profits?" by China's Economy & Policy-Gateway International Group states that as of the end of 2011, the assets in China’s banking industry reached 113.28 trillion yuan, representing an increase of 18.9% over 2010; the cumulative net profit throughout the year was 1.04 trillion yuan, an increase of 142.1 billion yuan over 2010, with a growth rate of 15.8%. The profit rate of assets was 1.3% and of capital was 20.4%. The operating performance of the banking sector continues to maintain a strong level of growth.
Why Does the Banking Sector Maintain High Profits?
Published: May, 2012
Pages: 8 P
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There are main reasons for high profits in the banking sector:
More than 80% of the profit in China’s banking sector is interest income; banks earn income through the spread that exists between deposit and lending rates. It is believed that the continuous growth of interest income in commercial banks is mainly due to the growth in earning assets and net interest margins, and the growth in interest-earning assets is mainly because China’s banking industry has been pursuing an expansion in the amount of available credit.
The interest-earning assets of commercial banks include bonds and other investments, balances with central banks, balances stored with or lent to other banks and financial institutions, as well as loans and receivables. It can be argued that the development trend of listed banks may be representative of China’s overall banking industry. Furthermore, as the interest-earning assets account for more than 95% of total assets, and as they share the same development trend as the total assets, it is fair to argue that the quantity of the interest-earning assets and the development trend of these assets can be assessed by analyzing the total assets in the banking industry.
The following two reasons may account for the rapid growth of assets in China’s banking industry.
More information can be found in the report “Why Does the Banking Sector Maintain High Profits?” by China's Economy & Policy-Gateway International Group.
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