The banking industry has faced a turbulent year in 2023, with significant challenges in the form of interest rate cuts and margin pressures. As the year draws to a close, it has been revealed that deposit interest rates have been cut three times this year, with major state-owned banks leading the charge in lowering rates. This trend has raised concerns about the impact on bank interest margins, and there is no clear end in sight for these challenges.
Analysts have pointed to the fact that housing-related non-performing assets may reach an inflection point in 2024, signaling potential improvements in that area. However, there are still uncertain factors in the external environment and concerns about the weak recovery of the real estate sector.
In terms of net interest margins, the trend has been consistently downward throughout 2023. Major banking institutions have struggled to offset the decline in asset-side interest rates, even with multiple rounds of deposit rate cuts. The reduction in interest rates has also affected the growth rate of deposits, despite the increasing willingness of residents to save.
Yet, there is some good news in the form of the bank’s investment business, which has shown growth against the trend. The high investment income has cushioned the impact of the decline in net interest income, leading to a year-on-year increase in total net profit for listed banks.
Looking forward to 2024, analysts expect the trend of interest rate cuts to continue, along with structural adjustments in the market. The banking industry may also see an acceleration in the issuance of special bonds by small and medium-sized banks as a means to alleviate capital adequacy pressure.
It is hoped that new regulations, such as the “Capital Management Measures for Commercial Banks”, will guide banks to optimize their asset structure and provide strong financial support for Chinese-style modernization. Despite the challenges faced in 2023, the banking industry remains resilient and is prepared to navigate the uncertainties of the year ahead.