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December 13, 2017

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Stable view on financial institutions

THE outlook for financial institutions in China through 2018 will be stable amid tighter government regulations on the industry and the nation’s overall stable economic growth, Moody’s Investors Service said yesterday.

Moody’s rated asset risks for banks to stabilize next year as their corporate profits are expected to rise. But the risk of delinquencies remains elevated among some highly-leveraged and loss-making borrowers as their borrowing costs are likely to increase amid tighter shadow banking regulations.

Liquidity in the banking system will remain tight for smaller banks due to regulatory efforts to constrain the growth of corporate and interbank leverage and shadow banking. But government support will remain strong for major banks, because financial and social stability remains “key policy priorities,” according to Moody’s.

Banks will benefit from an operating environment of steadying economic growth and recovering commodity prices that will boost their corporate profitability and asset quality, Sherry Zhang, an analyst from the rating agency, said.

The rating agency noted that while profitability will come under pressure for brokerages, it is confident that the major firms will see their profits stay above that of international peers.

Leasing companies will show “stable asset quality” and their liquidity and refinancing risks will be slightly mitigated by diversifying funding sources, Moody’s said, warning however, that their profitability will be pressured by higher funding costs.

Economic restructuring will support the “big four” asset managers’ core business growth, Moody’s said.


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