The third-quarter reports of the banking industry, given its role as the cornerstone of all the other industries, has drawn significant attention.

Compared to many industries, the banking sector isn't particularly outstanding, but it has generally maintained a steady upward trend. But within the sector, their performance was not even.

TiPost has compiled revenue and net profits attributable to shareholders for the systemically important banks from their third-quarter reports in 2023. Excluding the unlisted GF Bank, the other 19 systemically important banks include six major state-owned banks, eight joint-stock banks, and five city commercial banks.

The statistics show that revenue of state-owned banks and city commercial banks have both seen fluctuations, while joint-stock banks collectively experienced a decrease. Regarding net profits attributable to shareholders, state-owned banks and city commercial banks have seen collective growth, while joint-stock banks show a mix of increases and decreases. The joint-stock banks, in contrast to their strong performance in the past, reported unsatisfactory results. This may not be just for the third quarter but rather have lasted for some time.

China's commercial banking industry is primarily divided into three major categories: state-owned banks, joint-stock banks, and city commercial banks, each with its distinctive features.

 Compared to state-owned banks, joint-stock banks possess flexible mechanisms and innovative business. In contrast to city commercial banks, joint-stock banks operate nationwide and engage in comprehensive banking. By integrating the strengths of both and avoiding their weaknesses, joint-stock banks have been leading the industry in growth for quite some time.

Within joint-stock banks, various players have emerged, including the 'Retail King' China Merchants Bank (CMB), the 'Interbank King' Industrial Bank, the 'Corporate King' Shanghai Pudong Development Bank (SPD Bank), the 'International Business King' CITIC Bank, and the 'Micro and Small Enterprises King' Minsheng Bank, collectively known as the 'Five Great Kings' of joint-stock banks.

Meanwhile, banks like Ping An Bank, backed by financial conglomerates, China Everbright Bank that was previously a central government-owned SOE, and Huaxia Bank based in Beijing, have developed their distinctive business characteristics based on their resources.

After a phase of vibrant growth, other joint-stock banks seem to have encountered problems, except for CMB, which is surpassing Postal Savings Bank in revenues, outstripping Bank of Communications in profits and almost reaching the top four (ICBC, CCB, BOC, and ABC) in terms of market value.

For example, as the former 'Interbank King,' Industrial Bank recorded a revenue of 161.296 billion RMB from January to September, a 5.59% year-on-year decrease, and a net profit attributable to shareholders of 64.965 billion RMB, a 9.53% year-on-year decrease. In the third quarter alone, its net profit was 22.285 billion RMB, a 17.22% year-on-year decrease. Its stock price has also been relatively sluggish, hitting an 11-month low recently.

Shanghai Pudong Development Bank, born with a silver spoon in Shanghai, recorded a revenue of 41.585 billion RMB in the third quarter, a 7.66% year-on-year decrease, and a significantly reduced net profit of 4.848 billion RMB, down by 52.88% year-on-year. With notable decline in key financial indicators, the bank has in the decline in the past three years.

Backed by the insurance business, Ping An Bank had revenue of 39.024 billion RMB in the third quarter, a 15.6% year-on-year decrease, and a net profit of 14.248 billion RMB, down by 2.2% year on year. Such a simultaneous decline in a single quarter is rare in the bank's history.

All three banks have experienced changes in senior management this year. In June, Hu Yuefei, former president of Ping An Bank, resigned, and Ji Guangheng, deputy secretary of the party committee and deputy general manager of Ping An Group, stepped in. In July, Tao Yiping, former president of Industrial Bank, resigned, and Chen Xinjian, former supervisor of Industrial Bank, filled the vacancy. According to announcements, the former presidents' resignations were due to age.

SPD Bank, which saw the most significant decrease, has been on a downward trajectory for quite some time. Since its Chengdu branch concealed non-performing loans in 2017, SPD Bank has frequently adjusted its strategy, faced significant internal conflicts, and even rumors of physical altercations among senior management. In 2021, while other banks were still experiencing growth, SPD Bank was already showing a simultaneous decrease in revenue and profit.

Soon after submitting a significantly declining performance in their semi-annual report in September, the then Chairman Zheng Yang and President Pan Weidong were both dismissed. They were replaced by Zhang Weizhong, former Chief Business Officer of China Construction Bank (CCB), and Zhao Wanbing, former Deputy Director of Shanghai Finance.

Looking at the recent performance of several joint-stock banks, the third-quarter report is just a manifestation while the joint-stock banks have been on a downward trajectory for some time. This also reflects some deep changes in the Chinese economy.

Compared to joint-stock banks whose performance is less stable, state-owned banks are more suitable for handling central state-owned enterprises and government projects. In recent years, the  state-owned enterprises have been progressing well and have been the stabilizing force and ballast for the national economy. In the 2023 Fortune Global 500 list, China has a total of 142 companies listed, of which 97 are state-owned enterprises.

Compared to other commercial banks, state-owned banks are more attentive to industry- and company-related policies. For instance, in the escalation of real estate regulation, state-owned banks have been most effective in implementing regulatory instructions, strictly controlling the total volume and proportion of development and personal loans. In contrast, some commercial banks are still trying to find ways to bypass these restrictions and continue lending.

In recent years, there has been a trend of strict supervision in various industries, causing many private enterprises to be regulated and rectified, thereby affecting the financial institutions serving them. State-owned banks, which consider politics more, can maintain more stable development and have smaller performance fluctuations.

The advantage of numerous branches in state-owned banks has been amplified in the context of declining interest rates. More branches is beneficial for acquiring a large amount of current deposits, reducing the cost of deposits. The lower the cost of deposits, the more they can accept lower loan rates, enabling them to select high-quality clients and reduce bad debts.

Highly flexible and service-oriented retail banking was featured by joint-stock banks and it has brought substantial returns. However, the economic landscape has changed. During an economic upswing, retail lending can provide higher profit margins, but in an economic slowdown, the non-performing loans of retail credit products, such as mortgage loans and credit card loans, would significantly increase. The collapses of Japanese consumer credit in the early 1990s, the 2003 South Korean credit card crisis, and the 2008 U.S. subprime crisis all serve as lessons from the past.

During its period of rapid economic growth, the governor of the former 'Micro and Small Enterprises King,' Minsheng Bank, said,its too profitable to embarrass him. However, as the economic growth rate slowed, loans to micro and small enterprises became a significant problem. Minsheng Bank remains deeply embroiled, and the proportion of concerning loans remains high, and they have yet to completely emerge from this quagmire.

Currently, the macroeconomy still needs boosting, and the financial industry needs to support the real economy, continually offering advantages to enterprises. Although banks are about to face tough times, the situation of state-owned banks and city commercial banks should be better than that of joint-stock banks.

Soon after taking office as president of Ping An Bank, Ji Guangheng expressed in a media communication, “Tough as it may be, there are still days to go by. It's hard for the banks and it's hard for everyone here, isn't it?” These words express the heartfelt thoughts of joint-stock banks and demonstrate their resilience.

It is believed that joint-stock banks will navigate through this downturn and regain their past glory.

(This article was originally published on the TMTPost. Authored by Hu Runfeng; TMTPost analyst Zhao Chenhan also contributed to this article.)

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