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

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 affect [to China’s banking sector] could be very restricted,” stated Ji Zhihong, vice-president of the nation’s second-largest financial institution CCB at a briefing final week, when all the principle banks reported sturdy earnings.

China’s banks and different monetary establishments are nonetheless reporting to regulators the outcomes of stress-testing in opposition to what they see as a possible minefield of latest dangers that features publicity to European and regional US banks. In keeping 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 in opposition to the backdrop of rising geopolitical stress and monetary system turbulence.

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

“It doesn’t matter what the explanations had been for the problematic international establishments, it will definitely ends in stress and runs on deposits . . . we’ll be sure that maturity and pricing between belongings and deposits has no huge mismatch,” he stated.

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, stated 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 yr, that’s positively going to trigger a number of pressure on the banking system. Some banks, if they’re effectively managed, have methods to organize. However not everyone seems to be effectively managed.”

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

The online 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 development in China and through an unprecedented downturn and excessive ranges of company debt within the property sector, a significant 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 equivalent to requiring banks to arrange “dwelling wills” after chapter or takeover occasions.

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

“The irony is that the Swiss are considered as leaders in the right way 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 principally from the property sector.

At CCB, the non-performing mortgage ratio for property almost doubled yr on yr. China’s actual property sector has been rocked by a sequence of developer bond and mortgage defaults, as stringent debt management on the actual 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,” stated Liu Jiandong, chief danger officer on the Financial institution of China.


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