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

China’s greatest 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 Business Financial institution of China, China Development Financial institution, Agricultural Financial institution of China and Financial institution of China — have all reported there was no direct injury 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] 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. Based on employees finishing up the assessments, solely restricted publicity has been discovered.

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

Zhang Yi, vice-president of Financial institution of China, which has the most important quantity of overseas publicity, mentioned 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 overseas 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 massive mismatch,” he mentioned.

The largest lesson for China’s monetary system planners and regulators is to not “create the surroundings” that places banks into the same 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 concept. If you need to increase rates of interest by 300 [basis points] in a yr, that’s positively going to trigger lots of pressure on the banking system. Some banks, if they’re nicely managed, have methods to organize. However not everyone seems to be nicely managed.”

ICBC, the world’s greatest 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 strong — 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 serious driver of the financial 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 to be like inadequate not less than,” Chen mentioned.

“The irony is that the Swiss are seen 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 largely from the property sector.

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

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


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