Thursday, February 21, 2008

Tough Times for Chinese Banking in 2008: Analysts

by Richard York

The year 2007 for the Chinese banking sector was the most brilliant. However, in the current year, the banking sector of China will have to face tougher times, as fear of global economic slowdown led by the US economy begins to take its effect. In addition to this global slowdown in the economy, the tight monetary policy of Chinese policy makers is very likely to continue, expressed senior director at Fitch Ratings, Charlene Chu. The senior director also added that tightened credit quotas, correction in the stock market, as well as the sluggish property market in the country, will further make things difficult for the Chinese banks in the current year.

The earlier great figures of the economic growth were far outside the main figures and the country does not anticipate it to repeat this year with the same intensity as the last year; however, a reasonable amount of earnings growth is expected said Charlene Chu. Fitch Ratings senior director also added that it happened for the first time in the current year that the officials announced to the public the quarterly quotas as well as quotas for each banks. According to Chu, this means that the policy makers will be closely monitoring loan growth and intervene as soon as they think that it is time to tighten the reins. Some restraint in the growth of the bank fee income as the stock market fades away, is also anticipated, the senior director further added.

Very few Chinese banks are vulnerable to the effects of the subprime risk, especially the Bank of China; however, disclosure of the risk remains the problem in the banking sector. Chu said that China tends to disclose less information about its subprime risks and the risks of information are also higher, hence what the banks reveal in the coming months will be closely monitored. There has been considerable tightening in property financing in China and meanwhile, developers have shifted to the international market that has also exhausted due to financial upheaval all over the world presently.

Chu expressed that this development will adversely affect the asset quality of Chinese banks. The bank’s property lending share stands at one quarter on average which is divided in half towards mortgages and construction as well as development. Chu also added that a moderate amount of indirect exposure is also shown as something else. In recent years, the Chinese banks have experienced marked improvement in their asset quality; however, Fitch Ratings is cautious about this improvement.

Chu said that though the asset quality has considerably improved, it is not a cause to become overenthusiastic. Although the market environment is best, but at the same time potentially risky propositions remain hidden during the best of times. Charlene also added that problems remain concerning data and loss assumptions in reserve calculations. Lastly, the senior director said that they concentrate on the range of the specially mentioned loans that remain twice as high than the bulk of non-performing loans for the banks that Fitch Ratings cover.

 

 

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