Hong Kong, June 28, 2018 -- Moody's Investors Service says that China (A1 stable) continued
to make progress on limiting risk in the financial sector with coordinated
measures in the first quarter 2018, according to banking system
statistics released by the People's Bank of China and the China
Banking and Insurance Regulatory Commission.
"In particular, we are noticing slowing asset growth and stabilizing
asset quality, as well as accelerating loan growth as banks are
returning to conventional lending and away from shadow banking activities,"
says Nicholas Zhu, a Moody's Vice President and Senior Analyst.
"Looking ahead, we expect the regulators will maintain a cautious
approach in order to alleviate any potential disruption to the real economy
from the clampdown on shadow banking and interbank activities,"
adds Zhu.
Moody's conclusions are contained in its just-released report
"Banks -- China: Quarterly snapshot of credit profiles
".
Total assets grew 6.6% year-on-year in 1Q
2018, compared to 15.7% a year ago. The weakest
growth was among midsized joint-stock commercial banks with 3.0%
year-on-year growth in 1Q 2018. City commercial banks
reported 7.9% year-on-year growth.
Asset quality also stabilized in line with the sustained expansion in
the macroeconomy. The average nonperforming loan (NPL) ratio for
Chinese banks was 1.75% as of 1Q 2018, one basis point
higher than in 4Q 2017, while special-mention loans declined
to 3.42% of total loans from 3.49% in 4Q 2017.
Nevertheless, Moody's points out that China's ongoing
deleveraging could raise default risk somewhat for weaker borrowers in
the next 12-18 months.
Capitalization has softened somewhat, with the average Core Tier
1 capital ratio for all commercial banks down to 10.72%
at the end of 1Q 2018 from 10.75% at the end of 4Q 2017.
Moody's expects pressure on the banks' equity capital positions
will ease as asset growth continues to slow.
However ,risk-weighted assets (RWAs) grew faster than assets
as banks shifted their asset mix to loans that carry higher risk weights
and away from lower risk-weighted investment in shadow banking
products.
Profitability is stabilizing, with return on assets 13 basis points
up from Q4 2017, but 2 basis points lower than a year ago.
At the same time, net interest margins were 2 basis points down
from Q4 2017, but 5 basis points up from a year ago.
Finally, liquidity remains balanced among the banks. The
central bank cut the required reserve ratio for most banks by one percentage
point from 25 April 2018 to optimize the affected banks' liquidity
and help finance small businesses, and announced a further 50 basis
point cut effective on 5 July 2018 to support debt-for-equity
swaps and small businesses.
Subscribers can read the full report at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1127253
The report may also be found through Moody's topic page "China's trade-off:
Deleveraging 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 trade-off include:
• ABS -- China: New supervisory structure for leasing
companies is credit positive
• Renewable Energy -- China: Policies support renewable
sector's growth, but challenges ahead
• Banks -- China: Smaller banks face continued funding
weakness as use of structured deposits grows
• Regional & Local Governments -- China: 2018 Debt
and Finances Update
• Life Insurance -- China: Improving product mix and stabilizing
assets risks drive change to stable outlook
• Government of China: Change in China's economic structure
is gathering pace, a credit positive
• Banks: China finalizes liquidity risk-management rules
for banks, a credit positive
• Regulated Electric & Gas Utilities: China's new
pricing mechanism for residential users is credit positive for the gas
sector
• Integrated Oil & Gas: China's natural gas pricing
mechanism reform is credit positive for suppliers
• Investment Funds -- China: Long-term trends are
positive, even if regulation slows short-term growth
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This publication does not announce a credit rating action. For
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for the most updated credit rating action information and rating history.
Ray Heung
Senior Vice President
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
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Minyan Liu
Associate Managing Director
Financial Institutions Group
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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
Client Service: 852 3551 3077