Chinese banks face more risk amid volatility: Moody’s

Beijing, Jan 26 (IANS) Credit ratings agency Moody’s has highlighted the increased uncertainty and risk that Chinese banks face amid volatility in interest rates, exchange rates, stock prices and fund flows.

Their financial performance over the next two years will be driven primarily by the evolution of their asset quality, which is in turn a reflection of their appetite for risk, Xinhua cited Moody’s as saying in a report on Tuesday.

It forecast that banks focusing on growing loans to small and mid-size borrowers will see a faster rise in credit costs such as customers are more vulnerable to sector downturns and financial market volatility.

“We also anticipate further increases in loan delinquencies, more defaults on corporate debt and some losses in wealth-management products, as more borrowers struggle to meet payments against the backdrop of high financial leverage and a downturn in their respective sectors,” said Moody’s Senior Vice President Christine Kuo.

While the government will implement measures to mitigate financial market volatility and corporate defaults, their effectiveness will vary due to the complicated nature of China’s markets, Kuo added.

On the effects of yuan devaluation on Chinese banks, Moody’s said the direct impact will be modest because the banks show only small net open positions on foreign-currency exposures.

However, the indirect impact of a weakening yuan will be more significant for banks, as it will lead to more company defaults, according to the report.

As for the recent stock market volatility in China, Moody’s said Chinese commercial banks have little direct exposure to equity price movements, because of their low direct holdings of listed stocks.

While Moody’s believes the central bank will inject liquidity into the market when necessary, it expects more frequent episodes of tight funding conditions due to capital flows and banks’ growing portfolio of illiquid investments.

Leave a Reply

Please enter your comment!

The opinions, views, and thoughts expressed by the readers and those providing comments are theirs alone and do not reflect the opinions of www.mangalorean.com or any employee thereof. www.mangalorean.com is not responsible for the accuracy of any of the information supplied by the readers. Responsibility for the content of comments belongs to the commenter alone.  

We request the readers to refrain from posting defamatory, inflammatory comments and not indulge in personal attacks. However, it is obligatory on the part of www.mangalorean.com to provide the IP address and other details of senders of such comments to the concerned authorities upon their request.

Hence we request all our readers to help us to delete comments that do not follow these guidelines by informing us at  info@mangalorean.com. Lets work together to keep the comments clean and worthful, thereby make a difference in the community.

Please enter your name here