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Sunday, September 06, 2020 07:00 AM /by Fitch Ratings/ Header Image Credit: PYMNTS
The fall in Chinese banks' profits
will accelerate in 2H20 as the authorities target to more than double the
amount of non-performing loans (NPL) resolved compared with the first half of
the year, Fitch Ratings says.
Chinese banks' top-line growth is also challenged by compression of their net
interest margins. While most banks are nearing the completion of their
transition to using the loan prime rate (LPR) as their benchmark, broader
government directives to reduce borrowing costs will continue to suppress asset
yields for banks, and fierce deposit competition will push up funding costs.
Overall, we expect Fitch-rated banks to maintain similar risk appetites, but
believe the pressures on their profitability and capitalisation will persist
for the rest of 2020 and in 2021.
The outlook on Fitch's operating environment for Chinese banks is stable,
reflecting our view that the 'bb+' mid-point adequately captures systemic risk
for the rated banks. We expect regulators to remain committed to containing
financial-sector risks, despite a one-off increase in system leverage to around
265% of GDP this year. Continued NPL recognition and resolution should help
prevent a further build-up of credit risks in the system, and we view these
factors as having a more lasting impact on our assessment of China's operating
environment than near-term profitability pressures.
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