Chinese banks' asset performance deteriorates

Asset and loan growth slipped to 8.9% and 12.8% YoY in September, respectively.

Chinese commercial banks have decelerated in performance amidst a weakening asset performance in a tightening macroeconomic environment, according to a Moody’s report.

Asset and loan growth slipped to 8.9% and 12.8%, respectively, YoY in September from 9.4% and 13.3% at the end of June, senior credit officer Nicholas Zhu said. Non-loan asset growth remained at 4.6% in the same period, indicating the reduction of non-loan credit supply.

“Whilst slowing GDP growth and rising economic uncertainties imply a challenging operating environment for banks, credit pressure will vary, with smaller regional banks more vulnerable,” Zhu added.

On the other hand, systemwide non-performing (NPL) ratio inched up 1.86% in September from 1.83% nine months ago. Capitalisation stabilised on strong issuance of perpetual bonds which totaled $48b (RMB335b) in Q3, as well as slower growth in risk-weighted assets.

The central bank lowered the interest rate for the medium-term lending facility by five basis points to 3.25% in November 2019, signaling a more accommodative monetary policy stance amid signs of further weakness in the macroeconomic environment.

Additionally on the policy front, Moody's expects regulators will continue to prioritize financial stability as China's economic growth decelerates more rapidly than credit, leading to a slight rise in leverage.

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