China’s top lenders tout limited exposure to western banking crisis

China’s largest banks say they’ve escaped unscathed from the monetary disaster within the US and Europe, following the collapse of Silicon Valley Financial institution and Credit score Suisse.

China’s prime lenders — Industrial and Industrial Financial institution of China, China Building Financial institution, Agricultural Financial institution of China and Financial institution of China — have all reported there was no direct harm to their books from final month’s emergency rescue of Credit score Suisse by UBS and failures within the US banking sector.

“Even from an oblique or spillover impact perspective, the impression [to China’s banking sector] may be very restricted,” mentioned Ji Zhihong, vice-president of the nation’s second-largest financial institution CCB at a briefing final week, when all the primary banks reported sturdy earnings.

China’s banks and different monetary establishments are nonetheless reporting to regulators the outcomes of stress-testing towards what they see as a possible minefield of recent dangers that features publicity to European and regional US banks. In accordance with employees finishing up the assessments, solely restricted publicity has been discovered.

The scrutiny highlights lingering market considerations over Chinese language banks’ money administration and liquidity towards the backdrop of rising geopolitical pressure and monetary system turbulence.

Zhang Yi, vice-president of Financial institution of China, which has the biggest quantity of overseas publicity, mentioned that whereas his financial institution had not been hit by the disaster, it nonetheless deliberate to regulate offshore property and deposits.

“It doesn’t matter what the explanations had been for the problematic overseas establishments, it will definitely leads to stress and runs on deposits . . . we’ll guarantee that maturity and pricing between property and deposits has no large mismatch,” he mentioned.

The largest lesson for China’s monetary system planners and regulators is to not “create the setting” that places banks into an identical place as SVB and Credit score Suisse, mentioned Chen Lengthy, co-founder of Beijing-based analysis firm Plenum.

“The novel change of financial coverage is a really unhealthy thought. If you must elevate rates of interest by 300 [basis points] in a 12 months, that’s positively going to trigger loads of pressure on the banking system. Some banks, if they’re properly managed, have methods to organize. However not everyone seems to be properly managed.”

ICBC, the world’s largest financial institution, reported internet revenue of Rmb360bn ($52bn) for 2022, up 3.5 per cent on the prior 12 months. The opposite prime banks reported equally sturdy — or higher — revenue progress.

The web curiosity margin, a key gauge of financial institution profitability, remained regular or eased barely for the highest banks, suggesting resilience of their credit score books.

The outcomes got here regardless of subdued financial progress in China and through an unprecedented downturn and excessive ranges of company debt within the property sector, a serious driver of the economic system.

The banking disaster has dented China’s religion within the knowledge of regulators in Europe and the US. Chinese language regulators had been following measures akin to requiring banks to arrange “dwelling wills” after chapter or takeover occasions.

“The framework of regulating banks globally now appears inadequate at the least,” Chen mentioned.

“The irony is that the Swiss are seen as leaders in methods to regulate banks. Then Credit score Suisse, the [country’s] second-largest financial institution failed,” he added.

Regardless of higher than anticipated monetary outcomes, China’s prime lenders every warned of persistent dangers, stemming largely from the property sector.

At CCB, the non-performing mortgage ratio for property practically doubled 12 months on 12 months. China’s actual property sector has been rocked by a sequence of developer bond and mortgage defaults, as stringent debt management on the true property sector choked the business’s liquidity strains.

“The property sector will take time to recuperate, so the hangover on asset high quality will final for some time,” mentioned Liu Jiandong, chief danger officer on the Financial institution of China.

 

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