After the liberation of debt-side funds of Internet banks, their development has been rapid.
Among private banks, Internet banking is definitely the one that attracts the most attention. As an important "chess piece" in the ecological layout of various Internet companies, Internet banks have been unique since their establishment.
Without the stacking of offline branches, relying solely on the ability to acquire customers online has allowed Internet banking business to break through geographical constraints and gain great freedom. However, it has also caused a lack of trust between banks and deposit customers. It is particularly difficult to promote liability-side business in the early stage.
However, this situation is a thing of the past.
Net profit accounts for nearly 80% of the total assets of private banks, with explosive growth
In the past five years, Internet banks have gradually entered the public world. Since Shenzhen Qianhai WeBank was approved for establishment in 2014, Zhejiang Online Commerce Bank, Sichuan Xinwang Bank, Wuhan Zhongbang Bank, and Jiangsu Suning Bank have successively opened their businesses. In the past two years, five banks have made rapid progress and have begun to become the leading institutions of private banks.
Statistics from the China Banking and Insurance Regulatory Commission show that private banks had a net profit of 4.5 billion yuan in 2018 and a net profit of 8.2 billion yuan in 2019, of which Internet banks contributed nearly 80%. By sorting through the annual reports of four Internet banks (Wuhan Zhongbang Bank did not disclose the 2019 annual report), it was found that the net profit of the four banks in 2018 was 3.504 billion yuan, accounting for 77.87% of the overall net profit of private banks; in 2019, the net profit of the four banks was 6.415 billion yuan, accounting for 78.23%.
At the end of 2019, the asset size of Qianhai WeBank was close to 300 billion yuan, and MYBank also exceeded the 100 billion yuan mark. As for Jiangsu Suning Bank and Sichuan Xinwang Bank, which were less than three fiscal years away from their official opening, their asset size also increased significantly compared with the previous year. Among them, the assets of Jiangsu Suning Bank reached 63.901 billion yuan, an increase of 97.14% from the end of the previous year, and the assets of Sichuan Xinwang Bank reached 44.153 billion yuan, an increase of 22.11% from the end of the previous year.
The ability to absorb savings has increased by leaps and bounds, and debt-side funds have been liberated.
The rapid increase in asset size is due to the liberation of the liability side.
Internet banking is positioned to serve small and micro enterprises and individuals. This type of customer is inclusive in nature, has difficulty obtaining credit from traditional banks, and has strong demand for funds. However, the difficulty in attracting deposits has always restricted the development of Internet banks.
The debt situation of Qianhai WeBank and Zhejiang MYBank for four consecutive years shows that 2018 serves as a watershed and the situation of Internet banks is very different.
Before 2018, among the liability-side funds of Internet banks, deposits accounted for a small proportion, and the funds mainly came from interbank institutions. Qianhai WeBank's deposit-to-liability ratio has been around 7% for two consecutive years. Although Zhejiang MYBank's deposit ratio is relatively high, it also dropped by 6.3 percentage points in 2017.
After 2018, this situation has been greatly improved. On the one hand, the deposit interest rate of private banks is higher, which is close to that of some financial products, and the deposit insurance system of up to 500,000 yuan also adds a psychological safety cushion; on the other hand, the development of Internet finance is deeply rooted in the hearts of the people, and people have become accustomed to purchasing financial products and enjoying financial services through terminals and apps. The development of the liability side of Internet banking is ushering in liberation.
From a total perspective, Qianhai WeBank's total assets and liabilities have doubled since 2018, with deposits reaching 154.478 billion yuan, a 27-fold increase from the end of 2017. It will further grow in 2019, exceeding 200 billion yuan. The total deposits of online merchant banks showed a steady and rapid increase.
From a structural perspective, at the end of 2018, the proportion of Qianhai WeBank’s deposits suddenly increased to 74.23%, and in 2019 it reached 85.89%. The proportion of Zhejiang Online Merchant Bank's deposits has steadily increased for three consecutive years, reaching 61.11% by the end of 2019.
Jiangsu Suning Bank and Sichuan Xinwang Bank have experienced two complete fiscal years. Under the favorable conditions of the general environment, the liability-side funds of the two banks were mainly deposits from the beginning. Jiangsu Suning Bank's deposits accounted for 69.01% in 2018, which increased by 4.11 percentage points to 73.12% in 2019; Sichuan Xinwang Bank's deposits accounted for 41.34% in 2018, which increased by 25.72 percentage points to 67.06% in 2019.
Deposit business is the basis for the expansion of bank assets, and asset size is the basis for bank operations. From this point of view, the liberation of the liability side of Internet banks has greatly promoted the operation and development of institutions.
The problem of capital replenishment needs to be solved urgently. MYbank is testing the waters of perpetual bonds.
It is worth mentioning that after Internet banks solve the problem of liability-side funds and free up scale, they will face the problem of rapid consumption of capital.
According to statistics from the past three years, at the end of 2018, except for Jiangsu Suning Bank, the capital adequacy ratios of other banks were between 12% and 13%. Entering 2019, Jiangsu Suning Bank expanded its scale and entered a stage of rapid capital consumption. By the end of the year, its capital adequacy ratio dropped to 12.39%. Qianhai WeBank remained stable, while the capital adequacy ratios of MYbank and Xinwang Bank both increased.
Among Internet banks, Zhejiang MYBank always actively explores capital expansion paths. In December 2019, MYbank conducted a capital increase and share expansion, increasing its capital by 2.5 billion yuan and increasing its capital adequacy ratio by 4.3 percentage points. Just recently, the Zhejiang Banking and Insurance Regulatory Commission approved Zhejiang MYbank’s request for issuance of non-fixed-term capital bonds and agreed that MYbank would issue perpetual bonds of no more than 5 billion yuan. This is also the first time a private bank has issued a perpetual bond.
At present, the capital adequacy ratios of the four Internet banks have reached the normal level of banking institutions. The capital adequacy ratios of less than 20% can no longer support their rapid expansion. Internet banks will now face a problem: through which channels should they replenish their own "fresh blood"?
