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01398 ICBC
RTNominal unchange4.210 0.000 (0.000%)
Research Report

16/03/2021 15:48

Chinese banks' performance steady as economy recovers

[ET Net News Agency, 16 March 2021] Moody's Investors Service said in a new report that
Chinese banks' profitability and capitalization will stabilize, and asset growth will slow
down amid elevated asset risks over the next 12-18 months as China's economic recovery
continues. China's regulators are continuing to derisk the financial system with a special
focus on financial technology platforms.
"Chinese banks' asset growth is likely to decelerate in the next 12-18 months as the
economy becomes less reliant on extraordinary liquidity creation through the banking
system. Banks' loan balance grew 13.3% from a year ago at the end of 2020, 41 basis points
lower than three months ago. Non-loan asset growth also slowed to 8.3% from 9.3%," said
Nicholas Zhu, a Moody's Vice President and Senior Credit Officer.
Meanwhile, asset risks will stay high despite banks' steady asset-quality metrics.
Economic uncertainties will remain even after the pandemic because of difficult structural
adjustments pushing up nonperforming loan (NPL) formation. This is notwithstanding the
lower system's NPL ratio of 1.84% at the end of 2020, from 1.96% three months earlier, due
to large disposal of bad debts in the fourth quarter.
At the same time, profitability is likely to stabilize in the next 12-18 months to
reflect stable, albeit high, credit costs from elevated asset risks and the need to
replenish loan loss reserves after the substantial bad debt disposal last year.
Capitalization, too, will stabilize, supported by slower risk-weighted asset growth as
banks' asset growth shifts to retail loans with lower risk weights. System liquidity will
remain stable amid policy normalization. The PBOC has refrained from further easing
monetary policies as the economic recovery gathered pace while ensuring sufficient system
liquidity. (KL)

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