Tolerance may cloak banks' NPL ratios
By Louise Ho |
December 3, 2011, Saturday
|
Print Edition
Print Edition
CHINESE banks are facing increasing liquidity strain but their weakening asset quality may not show up in the form of non-performing loan ratios because of the central government's policies toward forebearance and support for borrowers, Fitch Ratings said yesterday.
In a report released yesterday, Charlene Chu, head of Fitch's ratings of Chinese banks, wrote that banks face stress on funding as repayments from borrowers slow and they are required to support weaker customers.
"Forbearance, loan rollovers, transfers of assets off-balance-sheet, and transactions with non-bank financial institutions may be preventing current stress from becoming apparent in NPL ratios, but cash positions clearly show that Chinese banks are under growing strain," Chu said.
Fitch warned there will be more cash constraints in 2012 if smaller banks face a lack of funds.
"Although at a system level credit capacity remains sizeable, most of these resources are sitting with state-owned banks and the People's Bank of China," Chu said. "As a result, some small Chinese banks have dwindling capacity to extend new credit or forbearance, and may require substantial relief in reserve requirements ahead."
Fitch said Chinese banks face key risks in future that can further strain their liquidity due to growing repayment woes by local governments and small and medium-sized enterprises, less bank deposits from a slowing economy.
However, Fitch estimated Chinese banks currently have 21 trillion yuan (US$3.3 trillion) in lending and forbearance capacity. Combined with the 16 trillion yuan in deposit reserves at the central bank, there should be enough money to prevent short-term financial risks.
In a report released yesterday, Charlene Chu, head of Fitch's ratings of Chinese banks, wrote that banks face stress on funding as repayments from borrowers slow and they are required to support weaker customers.
"Forbearance, loan rollovers, transfers of assets off-balance-sheet, and transactions with non-bank financial institutions may be preventing current stress from becoming apparent in NPL ratios, but cash positions clearly show that Chinese banks are under growing strain," Chu said.
Fitch warned there will be more cash constraints in 2012 if smaller banks face a lack of funds.
"Although at a system level credit capacity remains sizeable, most of these resources are sitting with state-owned banks and the People's Bank of China," Chu said. "As a result, some small Chinese banks have dwindling capacity to extend new credit or forbearance, and may require substantial relief in reserve requirements ahead."
Fitch said Chinese banks face key risks in future that can further strain their liquidity due to growing repayment woes by local governments and small and medium-sized enterprises, less bank deposits from a slowing economy.
However, Fitch estimated Chinese banks currently have 21 trillion yuan (US$3.3 trillion) in lending and forbearance capacity. Combined with the 16 trillion yuan in deposit reserves at the central bank, there should be enough money to prevent short-term financial risks.
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