Banking

China urges banks to broaden profit channels

(Agencies)
Updated: 2010-04-29 16:56

BEIJING - Chinese banks must develop new revenue streams because they can no longer rely on plump net interest margins for their profits, the country's chief banking regulator said on Thursday.

Liu Mingkang, chairman of the China Banking Regulatory Commission (CBRC), said banks needed to expand retail and wealth management services instead of depending excessively on lending to big companies and big projects.

"The cost of deposits is rising and the net interest margin is narrowing. The days of high margins of 3-5 percent have gone forever," Liu said in a statement on the CBRC's website.

He said the current net interest margin in China of about 2 percent in China was still twice that in many other countries.

Narrowing margins are partly due to the global financial crisis, which is making it urgent to change the growth mode of both China's economy and its banking industry, he said.

Chinese banks benefit from a built-in margin because the People's Bank of China imposes a ceiling on deposit rates and a floor on lending rates.

The PBOC and the CBRC have long coaxed banks to rely less on interest income, but progress in developing fee and commission-based services has been slow, in part due to restrictions imposed by the regulators themselves.