Improved outlooks on the horizon for Chinese finance companies

Policies to slow debt growth and control property prices appear to be working, abating economic risks.

Chinese finance companies are headed for a better outlook with risks abating as the country’s overall credit environment improves, S&P Global Ratings reported.

The ratings agency noted that there is a gradual buildup of private-sector debt and a slower rise in property prices. If the trend persists, S&P said that they could improve their assessment of Chinese finance companies’ and particularly banks’ economic risks

“Policies to slow debt growth and control property prices appear to be working. [Gross domestic product (GDP)] levels and GDP per capita continue to expand at solid rates, adding to buffers against credit risks in the economy,” S&P said in a report. 

“These factors could lead us to assess economic risk more favourably for the China banking sector, should the policy direction remain clear and be consistently executed,” it added.

In particular, four banks saw their outlooks reversed positively by S&P: Bank of Communications (BoCom), China CITIC Bank (CNCB), China Minsheng Bank (CMBC), and China Gungfa Bank. All four banks are said to benefit in the event the economic risk conditions in China will improve.

CNCB, in particular, is expected to benefit from extraordinary support from the China CITIC group, at least over the next two years.

S&P also expects CMBC to maintain its business position, funding profile, and liquidity. The bank is also expected to maintain its key asset quality metrics that is comparable with the industry average over the next two years.

CMBC is further expected to retain its moderate systemic importance to the Chinese banking system, S&P added.

Gungfa, meanwhile, is forecasted to continue improving its internal control and risk management, and maintain moderately high systemic importance over the next two years; whilst BoCom is expected to maintain its asset quality, and maintain an adequate liquidity position, over the next couple of years.

Photo courtesy of Denys Nevozhai