This is the script of CNBC's news report for China's CCTV on April 25, Thursday.
Welcome to the CNBC Business Daily.
We're thick in the earnings season for Chinese banks. Results from China's Minsheng Banks pleased markets with a 20% rise in profits, although there was some deterioration in net interest margins.
However, some analysts warn that the ongoing interest rate liberalization could hurt smaller lenders as their deposit franchise is weaker.
So how do banks broaden their deposit base?
[Sound on tape by Mike Werner, Senior Equity Analyst (Chinese & HK Banks), Sanford C. Bernstein & Co.: The only way is pricing and they are very limited as to what they can do right now, and growing their branch network. Which is something that CITIC is doing, and all the smaller players, but it's a very expensive way of getting deposits in the door.]
And our next guest says that with a bigger pool of deposits, large banks are likely to see stronger first quarter earnings compared to their smaller rivals.
[Sound on tape by May Yan, Director, Head of China Banks Research, Barclays: Average we're expecting about 6 basis points margin drop quarter on quarter as oppose to Minsheng's 15 basis point drop. Profit growth, we're expecting low double digit year on year.]
And as Beijing pushes ahead with new measures to further liberalize interest rates, how can banks stay ahead of the competition?
Here's May Yan again.
[Sound on tape by May Yan, Director, Head of China Banks Research, Barclays: If you look at other countries' winners, you usually have three key strengths. One is that you have a very good deposit franchise, which is the strength for the state owned banks. Secondly, if you do SME lending which gives you pricing power that can maintain your margins. Thirdly, you have to manage your asset quality effectively.]
Last week, China's Banking Regulatory Commission warned that banking sector faced growing risk of rising bad debt.
So is there a credit bubble brewing? Here's what Mike had to say.
[Sound on tape by Mike Werner, Senior Equity Analyst (Chinese & HK Banks), Sanford C. Bernstein & Co.: Not that I see. Not in the next two years at least. It's really difficult to start forecasting beyond that. What you will have is yes credit quality will deteriorate the next two years in a relatively slow manner. We're seeing this in eastern China. That's where we've seen the most NPL formation.]
Li Sixuan, from CNBC's Asia headquarters.