Chinas Midsize Banks Suffer Constricting Profits Due to Rising Costs and Online Financing Competition

Published By : 27 Oct 2014 | Published By : QYRESEARCH

China’s midsize banks are struggling to retain investor’s favors as they are increasingly lagging behind country’s top lenders, and are operating under huge pressures of rising funding costs and competition from online financial organizations. 

Margins generated from lending have remained largely constant at larger banks over the last six months but have considerably dropped at second-tier mid-sized banks like China Merchants Bank and China Everbright Bank, data analysis show. 

Analysts say that like their European peers, mid-sized banks of China are also presenting weaker balance sheet strengths, a factor that may raise concerns about banking sector’s future revenues.

Finance experts say that the midsized banks will be led further back due to pressures of rising fundraising risks to manage business amidst weaker capital base, leading to an increased divergence between these banks and larger banks in the country. 

These mid-sized banks, also called as joint stock banks, have approximately 300 billion yuan worth market capitalization, representing market share that is significantly lesser that those of the big capital lending banks of the country.

The net interest margins (NIMs), the difference between amounts paid by lenders for deposits and amount collected from loans, of Chinese banks have come under significant pressures due to aggressive competition from online finance firms such as Alibaba’s Yuebao.  

This has become a pressing issue particularly for smaller lenders like the midsized banks in China. These banks have to invest more funds for supporting their own business processes as their regulatory capital ratio has dropped down by 1.5% as compared to larger banks.
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