Hong Kong, December 12, 2017 -- Moody's Investors Service says that its outlook for financial institutions
in China through 2018 is stable, because of strengthening government
regulations on the industry and stable economic growth.
"The government will remain keen on adopting coordinated policy
measures to curb shadow banking and interbank activities and to address
key imbalances in the financial system," says Sherry Zhang,
a Moody's Analyst.
"As for the operating environment, steadying economic growth
and recovering commodity prices will support corporate profitability and
therefore the asset quality of the financial institutions,"
adds Zhang.
On the issue of liquidity, Moody's says that liquidity will
stay broadly stable, with a tightening bias. In particular,
the central bank's increasing use of liquidity facilities will improve
its monetary management. And, the banks' funding structures
will improve, because of their lower reliance on short-term
wholesale funding. However, competition for deposits has
intensified.
Moody's conclusions are contained in its just-released presentation
on "Financial Institutions China: 2018 outlook".
Moody's holds the following outlooks for specific sectors of China's
financial industry through 2018:
Banks — Stable
Securities companies — Stable
Leasing companies — Stable
Asset management companies — Stable
Life insurance companies — Negative
P&C insurance companies — Stable
For the banks, Moody's says that asset risks will stabilize,
on the back of improving corporate profit and despite high corporate leverage.
However, the risk of delinquencies remains elevated among some highly-leveraged
and loss-making borrowers, as they transit to higher borrowing
costs amid tighter shadow banking regulations.
The banks' capitalization levels will stay stable, underpinned
by slowing asset growth and capital raising, and overall profitability
remain under pressure from higher funding costs and lower fee income growth.
System liquidity will remain tight, especially among smaller banks,
as a result of regulatory efforts to constrain the growth of corporate
and interbank leverage and shadow banking.
Nevertheless, government support will remain strong for major banks,
because financial and social stability remain key policy priorities.
On securities companies, Moody's says that these companies
will demonstrate healthy liquidity and leverage profiles, and while
their profitability will come under pressure, the major securities
companies' profitability will remain above that of international
peers.
With leasing companies, such firms will show stable asset quality,
but pressure is evident in certain sectors. These companies'
liquidity and refinancing risks will be slightly mitigated by diversifying
funding sources, but their profitability will be pressured by higher
funding costs.
As for the asset management companies (AMCs), the country's
"big four" AMCs still dominate the AMC market. Economic
restructuring continues to support these companies' core business
growth, while higher asset prices support the profitability of their
core distressed asset management business. The AMCs will also see
their liquidity profiles improve, because of the increasing use
of long-term funding. Capital will remain pressured by strong
asset growth.
Moody's outlook on the life insurance industry is negative because
the regulatory clampdown on short-term savings products exposes
some insurers to liquidity stress and lowers new business growth.
These insures also face higher asset risk, as evidenced by their
rising alternative investments and higher concentration risk. Moreover,
their profitability is pressured by the high cost of liability and rising
business transition expense in relation to tighter regulations.
For the P&C insurance sector, Moody's says that stable
new car sales and fast-paced growth in the non-motor insurance
segment support premium growth. The sector's capitalization
levels remain solid, and increases in alternative investments generate
higher yield and higher asset risk. However, the underwriting
profitability of smaller insurers is under pressure, against the
backdrop of the pricing liberalization of motor insurance.
Subscribers can access the report at
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1101457
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:
• Banks: China's regulation of internet-based
consumer finance is credit positive for banks
• Structured finance - China, India and Korea :
2018 Outlook - Delinquencies will remain low in China and Korea,
but performance will vary by sector in India
• China Property Focus: Rated developers' sales growth remained
strong amid nationwide slowdown
• Renminbi Bonds Monitor: November 2017
• Quarterly China Shadow Banking Monitor
• China Credit: Party Congress policy agenda is generally credit
positive; challenges remain
• Banks — China: Improved asset quality and funding profile
in the first half, but weakened profitability
• 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
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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.
Sherry Zhang
Analyst
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