[ET Net News Agency, 12 December 2018] Moody's Investors Service says that high loan
growth continues to weigh on the capitalization and liquidity of China's regional banks,
despite slowing asset growth and improving problem loan recognition.
"The tighter regulation of shadow banking and interbank activities has helped
significantly slow asset growth, with the growth of regional banks having slowed to levels
more in line with the banking industry," says Yulia Wan, a Moody's Assistant Vice
President and Analyst.
"However, the banks' reported asset quality metrics still understate asset quality
problems, despite accelerated bad loan recognition partly as a result of tightening
regulatory requirements, leaving them lagging the broader system," added Wan.
Moody's conclusions are included in its just-released report "Regional banks -- China:
High loan growth still weighs on capitalization and liquidity". The data in Moody's report
comes from 133 regional banks that have listed or issued financial bonds in the market and
that have publicly available financial reports.
Contrasting the drop in asset growth, Moody's says loan growth remained strong in the
first half of 2018 for both listed regional banks and the overall banking industry, as
banks continue to migrate back to conventional lending and away from shadow banking
activities.
Core Equity Tier 1 (CET1) ratios at the regional banks gradually declined on the back of
high loan growth in 2017, but capital adequacy ratios (CARs) improved, reflecting the
slowdown in asset growth and issuance of capital instruments. The decline in CET1 ratios
continued for listed regional banks in the first half of 2018, in line with the pickup in
loan growth.
Net interest margins (NIMs) narrowed further for listed regional banks in the first half
of 2018, while NIMs improved for the banking industry overall, suggesting that these
regional banks remain subject to higher funding costs.
Further, liquidity pressure continues but will ease with more accommodative monetary
policies.
Loan to deposit ratios at listed regional banks also rose faster than for the overall
banking industry in the first half of 2018. Although these regional banks have higher
liquid resources than market funds, the gap has been narrowing in recent years and
reflects increased competition in deposits and continued growth in loans.
At the same time, liquidity at rural commercial banks is more stable than at city
commercial banks. (KL)