 "Although interest spread remains stable right now, the room for further growth in net interest income is limited because the scale of a bank's loans cannot expand indefinitely."
Interest spread is the difference between the average lending rate and the average borrowing rate. Changes in the spread are an indicator of profitability as the spread is where a bank makes its money.
"Moreover, the number of the high quality customers is limited. Banks are facing pressure on credit pricing since they are chasing after the same segment of high quality customers. For instance, if China Mobile or China Unicom wants to borrow, a whole host of banks would like to clinch the deal."
Under such pressure, it seems understandable that there is a chance the banks focus too much on expanding the issuance of loans while paying insufficient attention to others issues, say the rules.
China's banking regulator has recently announced its punishment to eight banks, including its two biggest lenders, for lending some state-owned companies money to invest in the stock market and real estate market in defiance of official efforts to cool speculation.
Alfred Yeung is head of the firm's global financial services group in China North.
"This indicates that the banks still have room for improvement in credit management with respect to pre-loan investigation and post-loan checking."
While most of the listed banks' cost-income ratio declined in 2006, there are still challenges regarding cost control.
Mike Shi again.
"The staff cost keeps rising as the banks have to raise their salary level to attract and retain talented people. And more investment in IT infrastructure is leading to an increase in depreciation and amortization charges."
Though the listed Chinese banks have abridged their distance from international banks, such as HSBC and Citibank, in some major gauges, Chinese lenders still need to grow non-interest income.
"Non-interest income makes up some half of those multinational banks' revenue, while for Chinese banks, non-interest income only accounts for 10 percent. The China Banking Regulatory Commission has also expressed the hope that the banks can raise their intermediary business income significantly over the next five to ten years.
While such gauges as capital adequacy and return on average equity are quite good now, thanks to the capital injection from the government and their successful initial public offerings, what their operation status will be in two or three years still waits to be seen. "
That was Mike Shi from Ernst & Young, commenting on China's listed banks.
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