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00939 CCB
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15/06/2020 17:51

Chinese banks' asset growth points to rebound in leverage

[ET Net News Agency, 15 June 2020] Moody's Investors Service said in a new report that
Chinese banks' asset quality, capitalization and profitability weakened in the first
quarter of 2020, while accelerating asset growth indicates a rebound in systemwide
leverage as the government aims to boost the economy.
"Asset growth jumped to 10.7% at the end of March 2020 from 8.7% a year ago, driven by
growth in non-loan assets and adding to already high systemwide leverage, a credit
negative," said Nicholas Zhu, a Moody's Vice President and Senior Credit Officer.
"Moreover, we expect the supply of non-loan shadow credit to increase through the rest
of the year, as the coronavirus disruptions have slowed the implementation of planned
asset management regulations," added Zhu.
The system's non-performing loan (NPL) ratio rose to 1.91% at the end of March 2020 from
1.86% at the end of 2019 and is likely to rise further given the lag to fully capture the
increase in loan delinquencies. And with consumer sentiment remaining weak for some time,
asset quality pressure will persist for the foreseeable future.
Meanwhile, capitalization weakened on fast growth in risk-weighted assets, with Core
Tier 1 capital ratios falling by four basis points on average in the first quarter of
2020. Profitability - as measured by annualized return on assets - also dropped by four
basis points to 0.98% over the same period and will likely stay pressured on narrowing net
interest margins and elevated credit costs.
Finally, liquidity remains adequate, supported by monetary easing policies to offset
disruptions caused by the coronavirus outbreak. (KL)

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