Negative outlook for Chinese banks: Moody’s
(14 December 2015 – Hong Kong) The outlook for the Chinese banking system is negative, with the country’s overall creditworthiness set to worsen over the next 12 to 18 months according to ratings agency Moody’s Investors Service.
Moody’s analyst, Frank Fu said: "The operating environment is deteriorating and our baseline scenario now assumes a further moderation in GDP growth to 6.3 percent in 2016 from 6.8 percent in 2015.
“Overall system leverage, as measured by total credit to nominal GDP, will likely reach 209 percent in 2015 and rise further in 2016, from 193 percent at end-2014, and adding to repayment risks."
Problem loan and delinquency formation rates are increasing, reflecting the effect of slower economic growth. There is also some evidence that problem loan recognition has become less stringent as an increasing number of loans overdue for more than 90 days are not classified as problems loans.
The firm believes that the uptrend in problem loans and delinquencies will continue to be most evident in sectors experiencing overcapacity and/or cyclical downturns. These sectors include wholesale and retail, and manufacturing.
Moody's expects support to remain strong for major banks, reflecting the policy imperative of maintaining public confidence and systemic stability. However, support for smaller banks will become more selective following the implementation of the deposit insurance scheme.
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