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Friday, January 18, 2019, 22:05
Challenging year ahead for China’s financial industry
By Edith Lu
Friday, January 18, 2019, 22:05 By Edith Lu

China’s slowing economy and declining interest rates will continue to affect the profitability of financial industry including the insurance and banking sector this year, according to Nomura Holdings on Friday.

With the central government’s relaxing fiscal and monetary policy, the People’s Bank of China is expected to cut the banks’ reserve requirement ratio three more times in 2019 - which could lower market rates, said Donald Tang Shengbo, a Hong Kong-based analyst at Nomura.  

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He predicted banks’ interest margins, life insurance’s interest spreads and property insurance’s underwriting profits would all decline. But there could also be a rebound during the year.  

And if easing monetary policy increases liquidity into the real economy, this will be more beneficial to the life insurance sector

Donald Tang, analyst

“And if easing monetary policy increases liquidity into the real economy, this will be more beneficial to the life insurance sector,” Tang added. 

Last year was a challenging time for the property insurance sector, as China experienced a drop in sales by 2.8 percent for new cars - the first time in almost 30 years for the world’s largest auto market. There are some concerns this could become a potential long-term decline.  

Discussing the opening-up of China’s insurance market, Tang said incremental changes could be observed as foreign capital could increase the investment ratio of joint ventures. 

Tang believes the banking industry will experience single-digit growth in profits this year - but growth rates may be slower. 

READ MORE: China banking sector's assets up 7.5%

He predicted net interest margins – based on the efficiency of a bank’s investment decisions – would drop slightly by zero to six basis points. The central government has said banks should increase lending to privately owned businesses as well as to small and medium-sized enterprises; consequently, non-performing loans are likely to climb by no more than 2 percent. 

Banks have all been striving to write off bad debts and add provisions in the past few years. It is generally believed the quality of assets will not deteriorate quickly.

For safe investments, Tang recommended people focus more on property insurance first, followed by the banking sector and then life insurance.

 

edithlu@chinadailyhk.com

 


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