[ET Net News Agency, 2 October 2019] Moody's Investors Service said that asset risk is
rising in China's banking system on the back of faster asset growth, but that adequate
liquidity and ongoing capital raising will help maintain financial system stability in
line with government objectives.
"We expect Chinese regulators will likely continue their overriding priority of
maintaining financial stability, but that they will implement coming initiatives at a more
measured pace in view of a difficult macroeconomic environment," said Nicholas Zhu, a
Moody's Vice President and Senior Credit Officer.
The latest banking system statistics released by the People's Bank of China and the
China Banking and Insurance Regulatory Commission showed commercial banks continued to
increase loan growth during the first six months of 2019, in response to regulatory calls
for more lending to the real economy.
"Despite this fast asset growth, we expect asset quality will remain broadly stable on
the back of tightening regulations," added Zhu.
"However, we are seeing some divergence between large state-owned commercial banks and
city/rural commercial banks, with the former boasting stronger risk management," he noted.
Capitalization meanwhile softened during 1H 2019 in line with faster asset growth, with
core Tier 1 Capital Adequacy Ratios down 28 basis points.
Profitability is weakening, with net interest margins (NIMs) down eight basis points
year-on-year during 1H 2019. The reform of the loan prime rate mechanism will further
narrow lending margins, a credit negative.
Finally, liquidity remains adequate, supported by the central bank's more accommodative
monetary policy stance. (KL)