China Tightens Regulatory Stance
(19 June 2018 - China) Fitch reports that China’s tightened regulatory stance has decelerated risks and shored up stability in the finance sector but not enough to upgrade bank rating upgrades sector wide as seen by Moody’s rating agency recently.
The authorities have also not been tested in their resolve to tackle financial risks if economic growth slowed beyond tolerance levels. Regulatory tightening has slowed credit growth over the last year, particularly targeting shadow bank activity which remains broadly elevated.
The largest state banks including Bank of China (BOC), China Construction Bank and ICBC are likely to be less affected by tighter regulation which could increase asset impairments given their stronger capital positions and loss-absorption buffers, as well as superior liquidity and in the case of BOC geographical diversification. Mid-tier banks are more exposed, due to weaker funding and liquidity profiles, larger off-balance-sheet activities, and lower loss-absorption capacity.
IN a bid to control indebtedness and support small businesses, China's central bank (PBoC) will cut the reserve requirement ratio (RRR) for selected lenders, releasing US$140 billion in liquidity. The RRR for some banks will drop by 0.5 per centage point, effective July 5 to further promote the debt-to-equity swap program. The cut will apply to major state-run commercial banks, joint-stock commercial lenders, postal banks, city commercial lenders, rural banks and foreign banks.
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