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 high 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] may 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 primary banks reported robust 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 recent dangers that features publicity to European and regional US banks. In line with workers finishing up the exams, solely restricted publicity has been discovered.
The scrutiny highlights lingering market issues over Chinese language banks’ money administration and liquidity in opposition to the backdrop of rising geopolitical rigidity and monetary system turbulence.
Zhang Yi, vice-president of Financial institution of China, which has the most important 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 have been for the problematic international establishments, it will definitely ends in stress and runs on deposits . . . we’ll make it possible for maturity and pricing between belongings and deposits has no massive mismatch,” he stated.
The most important lesson for China’s monetary system planners and regulators is to not “create the surroundings” that places banks into an analogous place as SVB and Credit score Suisse, stated Chen Lengthy, co-founder of Beijing-based analysis firm Plenum.
“The unconventional change of financial coverage is a really unhealthy concept. If you must increase rates of interest by 300 [basis points] in a yr, that’s positively going to trigger quite a lot of pressure on the banking system. Some banks, if they’re properly managed, have methods to arrange. However not everyone seems to be properly 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 high banks reported equally sturdy — or higher — revenue development.
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 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 “residing wills” after chapter or takeover occasions.
“The framework of regulating banks globally now seems inadequate at the very least,” Chen stated.
“The irony is that the Swiss are considered as leaders in how you can 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 high lenders every warned of persistent dangers, stemming largely 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 true property sector choked the trade’s liquidity traces.
“The property sector will take time to recuperate, so the hangover on asset high quality will final for some time,” stated Liu Jiandong, chief threat officer on the Financial institution of China.