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Darker outlook for Chinese banks
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Chinese banks will see a further deterioration in their loan quality and profitability this year amid tight liquidity and a quickening pace in liberalizing interest rates, Standard & Poor’s Ratings Services said in a report yesterday.
“We believe Chinese banks’ loan quality will deteriorate noticeably in 2014,” said Qiang Liao, senior director at S&P.
The banks remain heavily exposed to debt-laden local government financing platforms and manufacturers saddled with overcapacity because China’s decade-long construction boom is cooling, the rating agency said.
S&P also said it expects rising credit costs, narrowing interest margins and slowing growth in non-interest income to hit the banks’ earnings this year. The return on average assets is likely to fall to 0.8 to 1 percent during the year, from 1.1 to 1.2 percent in 2013.
But the drop in loan quality is unlikely to be severe as a stabilizing domestic economy and pragmatic policy responses to deal with emerging risks should limit the rise in bad loans, S&P said.
The big five banks — the Industrial and Commercial Bank of China, China Construction Bank, the Agricultural Bank of China, the Bank of China and the Bank of Communications — achieved aggregate net earnings of 202 billion yuan (US$33 billion) in the third quarter last year. That was a 14.3 percent gain from the same period in 2012, according to calculations based on their financial reports.
The outstanding bad loans reached 563.6 billion yuan for the banking sector while the bad loan ratio stood at 0.97 percent by the end of last September, according to the China Banking Regulatory Commission.
“Our outlook on the Chinese banking sector remains stable,” Liao said.
“In our view, banks’ business position, capitalization, risk position, and funding and liquidity should support their stand-alone credit profiles.”
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