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WHY
IT'S IMPORTANT
Chinese lenders are still facing challenges such as narrow
margins and low loan rates, despite Beijing's efforts to revive
the economy amid a property sector crisis and sluggish
consumption.
Rural commercial banks, whose role is to lend money to support
small businesses, are now putting more money into trading bonds
and other financial assets, a sign that the lenders are
deviating from their original mandate.
Funds and retail investors have also been rushing into the
safety of bonds, prompting warnings from authorities about a
bubble in that market.
BY THE NUMBERS
Suzhou Rural Commercial Bank and Zhangjiagang Rural Commercial
Bank saw their investment revenues jump 116% and 176%,
respectively, in the first half of the year from same period
last year, according to their financial statements. Conversely,
their net interest income - the primary revenue source -
declined by 7% and 12% respectively.
Investment income now constitutes around 30% of total revenue
for both banks, a sharp rise from the low teens in 2021.
The banks' statements indicate that the main driver behind this
growth in investment income is the disposal of debt investments
and financial assets held for trading purposes.
KEY QUOTES
Rural commercial banks, especially those in economically weaker
regions, are facing more prominent asset quality and
profitability challenges, said Elaine Xu, director of
Asia-Pacific financial institution at Fitch Ratings.
Loan growth for many of these banks has markedly decelerated
this year due to subdued loan demand and intensifying
competition from larger banks, which are increasingly dominating
the lending to micro-small enterprises, said Xu.
The challenges have pushed some of them towards adopting a more
aggressive stance in trading investments to counteract the
ongoing squeeze on net interest margins, Xu said.
(Reporting by Shanghai Newsroom; Editing by Vidya Ranganathan
and Miral Fahmy)
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