Regional banks ‘still face credit pressures’

CHINA’S regional banks still face great credit challenges as their capitalization and liquidity remain under pressure from high loan growth, despite slowing asset growth, improving problem loan recognition and efficiencies, Moody’s Investors Service said in a recent report.

Based on data from 133 regional lenders that have listed or issued financial bonds in the market and have publicly available financial reports, the ratings agency found that regional lenders’ capitalization is pressured by fast loan growth, although their capital adequacy ratios rose in 2017.

The capital adequacy ratio is a measure of a bank’s capital as a proportion of its riskweighted credit exposure.

And the report says the profitability of smaller players still lads behind the industry as a whole due to fierce competition for deposits and higher credit costs.

Data shows that listed regional banks’ net interest margins — a key indicator of commercial lenders’ profitability — narrowed further in the first half of 2018, compared with an improvement in the sector’s average level, which suggests that they remain subject to higher funding costs.

Moody’s said that liquidity pressure continues for these smaller operators as their loan to deposit ratios rose faster than the industry during the first six months of 2018. The rating agency believes that such pressure will ease with more welcome monetary policies from regulators on the way.