We are pleased to present our Banking Newsletter. To provide a more comprehensive perspective to readers, we have strengthened the content by including more in-depth analysis from a wide range of perspectives across banking industry and financial markets, as well as an overview of listed banks’ financial results. The sample size of the listed banks covered has also been expanded from 10 to 12 major listed banks (we refer them as the "Major Listed Banks") that have released their 2014 annual results on or before 20 April 2015. The total assets of the Major Listed Banks for 2014 accounted for 73.22% of the assets of China’s commercial banking sector.

Banks’ earnings slowed further in 2014 as provisions increased significantly due to concerns over credit risk in light of the economic downturn. The major Listed Banks’ credit asset quality continued to deteriorate in 2014, with non-performing loan (NPL) balance increasing and NPL ratios also rising. The NPL balances of the Major Listed Banks reached RMB 641.51 billion by the end of 2014, representing an increase of 38.23% from the end of 2013. NPL ratios for the Major Listed Bank rose by 0.24 percentage points to 1.23%, which is a clear sign of further exposure to credit risk.

Banks’ credit risk will increasingly be exposed in 2015. Banks need to get to grips with credit asset quality pressures. A more prudent loan impairment loss recognition policy may help to control risks, while increased the disposal of NPLs through write-offs and transfers will reduce asset quality pressure.