Banks' asset quality 'faces pressure'

Bad loan ratio rises, but risks still 'under control', PwC report shows

China's top 10 listed banks face downward pressure on asset quality in the current half-year, but the risks are under control, according to a report by PricewaterhouseCoopers International Ltd released on Tuesday.

PwC analyzed the first-half asset quality of the four major State-owned commercial banks and six joint-stock ones to develop its forecast for the second half.

The 10 banks' total non-performing loans stood at 411.7 billion yuan ($67.3 billion) at the end of June, up 9.43 percent from the beginning of the year. The average NPL ratio was 0.95 percent, up 0.02 of a percentage point.

The increase in bad assets was mainly caused by a slowing economy and widespread industrial overcapacity, said Raymond Yung, financial services chief with PwC China.

The absolute amount of NPLs, as well as the ratio, may continue to rise through year-end, presenting more risks in asset quality management, Yung added.

The top 10 listed banks generated total interest income of 1.77 trillion yuan as of late June, up a mere 6.57 percent year-on-year. The year-earlier growth rate was 33.72 percent.

The slowdown was attributable to two rounds of interest-rate cuts by the central bank this year, said the report.

Returns on interest-bearing assets declined at eight of the 10 banks because of lower loan yields, compared with the same period in 2012.

The deregulation of interest rates will further encroach upon banks' profitability, prompting them to expand their scope of business.

PwC suggested that wealth management products, if properly regulated, could generate much alternative income.