Hong Kong, May 02, 2018 -- Moody's Investors Service says that the 2017 results of 12 Chinese
banks are in line with Moody's view that the Chinese banking system
has entered a slower asset growth period and has reacted to the broad
directive to reduce regulatory arbitrage, opaque investments and
other shadow banking activities.
"Furthermore, we expect these adjustments to continue in 2018,
with a key driver being the tighter scrutiny of bank compliance with wholesale
funding caps," says Ray Heung, a Moody's Senior
Vice President. "And, loan growth will keep outpacing
assets."
"In addition, improvements in asset quality, steadiness
in capitalization, recovering profitability, and lower use
of market funding — all of which occurred in 2017 — will continue
in 2018," adds Heung.
Moody's conclusions are contained in its recently released report,
"Banks — China: Asset quality and margin improvement
will support profitability in 2018". The report covers the
big five commercial banks and Postal Savings Bank of China, four
joint stock commercial banks and two city commercial banks.
The adjustments seen in 2017 will — as indicated — continue
in 2018, with a key driver being tighter scrutiny of bank compliance
with wholesale funding caps.
Moody's expects a broader decline in wholesale funding in 2018,
as the banks started to curtail issuance of negotiable certificates of
deposit (NCDs) at the start of the year, with a key reason being
the regulator starting to require compliance with the rule that caps wholesale
funding — including NCDs — at one third of total liabilities,
as part of the banks' quarterly Macro Prudential Assessment.
In 2018, assets will also continue growing more slowly, and
Moody's expects loans to grow faster than assets in 2018,
driven partly by a redirection of off-balance-sheet assets
back on balance sheets.
With asset quality, the stabilization in the domestic economy and
a synchronized pick-up in global growth suggest that improvements
in this area will continue in 2018.
The aggregate nonperforming loan ratio of the 12 banks fell to 1.53%
at the end of 2017 from 1.67% a year earlier. Meanwhile,
new 90-day overdue loans/average loans, a measure of new
problem loan formation, also dropped to 0.33% from
0.63%.
At the same time, bank capitalization in 2018 will be supported
by continued modest asset growth and capital raisings, after staying
steady in 2017 on modest asset growth.
The 12 banks' aggregate capitalization was almost unchanged in 2017,
balanced between slower asset growth and their need to reabsorb off-balance-sheet
assets. The latter was more prevalent among joint stock banks,
which explains the larger capitalization changes in some.
Bank profits will be supported by continued falling credit costs as the
asset cycle improves, and the recent lowering of provision requirements
kicks in.
Most banks reported improved net interest margins sequentially in 2H 2017
versus 1H 2017, in line with a bottoming of market interest rates.
The banks' lending spreads in 2018 will be sustained by steady loan demands,
stable to higher interest rates, and recent cuts in required reserve
ratios.
Subscribers can read the full report at:
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1121259
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:
• Banks: China cuts banks' required reserve ratio,
a credit positive
• Property -- China: Scale and financial strength are
key to navigating tougher business conditions
• Telecom Equipment: US banks Chinese telecom equipment maker
ZTE from buying US components, a credit positive for its rivals
• Property -- Hong Kong: Improving retail and stable office
rents will support rated companies' credit quality
• Property -- China: Projected 2018 financials suggest
rated developers' credit quality will diverge more
• Hong Kong-listed Chinese Life Insurers: Credit profiles
improve as business transformation continues
• Hong Kong-listed Chinese P&C Insurers -- China:
Non-motor lines sustain overall business growth and underwriting
profitability
• Life & Health Insurance: China's launch of tax-deferred
retirement insurance pilot program is credit positive for insurers
• Securities Companies -- China: Operating risks remain
high in stock pledged lending business, despite more regulations
• Structured Finance -- China: Securitization is growing
as a funding source for the economy
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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.
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
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
Client Service: 852 3551 3077