S&P downgrades economic risk to Chinese banks
(24 September 2015 – China) According to Standard & Poor’s (S&P), China’s banks face a growing risk linked to increase in bad loans and problems in its real estate sector.
The US based ratings firm said it had revised to ‘negative’ from ‘stable’ its assessment of the economic risks facing China’s banking industry.
“We view economic risks for China’s banking industry as high,” S&P said in a report. Big lending by banks and the country’s informal shadow-banking system between 2009 and 2013 “has led to high risks of economic imbalances and elevated credit risks in the economy,” it said.
China’s economic growth has slowed to its lowest levels in 25 years, and despite five rate cuts and several reductions in bank-reserve requirements since late 2014, is not expected to reach its economic growth target of about 7 percent this year.
S&P said “Chinese banks have a strong customer-deposit base, and credit growth in the country has slowed, state ownership of major Chinese banks leads to market distortions and the system lacks transparency.”
Qiang Liao, an S&P senior director and author of the report, added that the ratings firm sees a one-in-three chance that private-sector credit could exceed 150 percent of gross domestic product by the end of 2016, up from around 141 percent now.
Mr. Liao also indicated that the firm sees a continued risk that China’s real-estate market could undergo a correction.
S&P however maintains a stable outlook on its rating for China’s banking industry itself despite the negative assessment of external economic conditions impacting the industry. The ratings firm highlighted positive developments for the banking sector including interest-rate liberalisation, a slower-growing shadow-banking sector and China’s expanded domestic bond market.
“We expect banking regulators to stay vigilant and responsive to China’s economic slowdown and unintended consequences of the unfolding financial disintermediation,” the report said.
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