Hong Kong, October 09, 2017 -- Moody's Investors Service says that the results of Chinese banks
for the six months between January and June 2017 (H1 2017) show better
asset quality — in line with a more stable macroeconomic environment
— and an improvement in their funding profiles. In particular,
regulatory tightening curtailed the banks' reliance on market funding.
However, the banks' lower net interest margins pressured their
profitability.
"The banks' H1 2017 performance demonstrates that regulatory
measures implemented since January this year have been successful in containing
financial risks and unwinding some shadow banking and interbank activities,"
says Nicholas Zhu, a Moody's Vice President and Senior Analyst.
"These positive outcomes will likely continue under the current
regulatory environment; a credit positive for the banks, because
such a situation would relieve the strain on their capital and funding
positions, although at the expense of profitability,"
adds Zhu.
Moody's also points out that banks that have relied on market funds
to support the previous phase of their asset expansions will likely face
lower profitability.
Moody's analysis is contained in its just-released report
on the announced H1 2017 results of 16 banks rated by Moody's.
These banks account for more than 70% of total assets for Chinese
commercial banks. Moody's report is titled "Banks —
China: Improved asset quality and funding profile in the first half,
but weakened profitability," and is co-authored by Zhu.
The banks' average asset growth slowed markedly to 4.4%
during H1 2017, due partly to general declines in their investment
in loans and receivables. Loan growth also remained subdued,
with mortgage loans under strain from tightened macro-prudential
measures on property transactions.
Special-mention loans fell by an average 27 basis points to 3.02%
of total loans, and new 90+ day delinquencies fell to an average
0.73% of total loans in the same period compared with 1.27%
a year earlier. All 16 banks reported loan loss reserves exceeding
their 90+ day delinquencies.
As for capitalization, the banks reported an average core Tier 1
capital ratio of 10.85% at the end of H1 2017, which
was nine basis points lower than six months earlier. This ratio
improved among most joint-stock commercial banks to reflect their
slower asset growth, but fell for four state-owned commercial
banks, partly as a result of dividend payouts.
Average net interest margins (NIMs) for the 16 banks contracted 17 basis
points to an annualized 2.03% for H1 2017 compared with
a contraction of 36 basis points in 2016. In particular,
the pace of NIM contraction has slowed for most state-owned commercial
banks.
The banks' use of wholesale funds generally fell, with funds that
are due within three months falling by an average 0.9 percentage
points to 13.8% of total liabilities and equity.
And, the overall liquidity trend was stable, with the 16 banks
reporting average loan-to-deposit ratios of 83.5%
at the end of H1 2017, after including their investments in loans
and receivables in the numerator.
Subscribers can access the report at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1090814
The report may also be found through Moody's topic page "China's Trilemma:
Growth, Reform and Stability", available at http://www.moodys.com/chinarebalancing.
This page provides a centralized source for Moody's research related to
key credit issues in China as the country's macroeconomic story continues
to unfold.
Recent Moody's publications relating to China's Trilemma include:
• China's Belt and Road Initiative: BRI report card:
Positive factors outweigh negatives for China and recipient countries
• Property — China : Most rated developers have capacity
to manage higher bond refinancing risk in 2018
• Government of China -- A1 Stable: Regular update
• Securitization — China: Sector update — Q2 2017:
Issuance volumes up; auto ABS performing well
• China's Plan to Tighten Regulation of Negotiable Certificates of
Deposit Is Credit Positive for Banks
• Mass Transit Sector — China : Strategic importance
underpins credit profiles; Heavy capex remains
• NPL Securitization — China: Chinese NPL deals show
solid performance, but short history clouds future
• Internet companies — China: Finance operations weaken
credit quality; most companies have mitigants
• Cross-Sector — China: Reduced Credit Intensity
of Growth Key to Achieving Policy Objectives
• Quarterly China Shadow Banking Monitor
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This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.
Sonny Hsu, CFA
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Minyan Liu
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
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