The Chinese banking industry recorded annual net profit growth rate of 30.6% in 2008 amidst global financial crisis, largely due to the government’s initiative and strong financial position.
With the net profit growing at the rate of 30.6% annually to mount to 583.4 Billion Yuan (S85.4 Billion), the Chinese banking industry rose to the No. 1 spot in 2008, as reported by xinhuanet.
The return on investment of Chinese banks stood at 17.1% in 2007, up nearly 7 percentage points against the global average. The profit of Industrial and Commercial Bank of China (ICBC) and China Construction Bank surged to 111.2 Billion Yuan and 92.64 Billion Yuan respectively. Moreover, Bank of Communications and Bank of China posted profit of 28.39 Billion Yuan and 64.39 Billion at 40.05% and 14.42% respectively.
Despite the worst financial crisis for decades, the Chinese banks gave extraordinary performance on account of their commitment to become modern financial enterprises and increase control on risky activities.
Moreover, the banks cooperated with the central government, which had made intensive efforts to raise liquidity to deal with the global financial crisis and the domestic economic slowdown, by increasing credit advances in the market. There are dual benefits of increasing lending by banks – firstly, it supported the government’s efforts to fuel domestic demand and boost economic growth, secondly, it improved the profitability of banks.
This stupendous performance highlights how the Chinese banks have dealt with the global financial crisis and become the largest and most profitable lenders in the world. It also indicates to the affluence of Chinese people who are traditionally known to save a large proportion of their income instead of taking credit.
Apart from this, the lenders are closely monitoring the activities in the global financial market and modifying their investment strategies and asset structure accordingly.
According to a Research Analyst at RNCOS, “The banking industry in China has largely been expanded on account of domestic demand. The industry is facing bad loans primarily due to rise in bank lending and the speculative bubbles as the banks have opened the lending and raised the money supply in the market. Although there is not much impact on the financial positions of banks, this sudden rise in loans will affect the quality.”
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