June 29 (Reuters) – Chinese banks would see their bad loan ratios creep up in the next few years but it was unlikely that they would face a systemic crisis similar to that suffered by their Wall Street counterparts two years ago.
“Lending to the real estate sector and local government financing vehicles in 2009 are sources of future growth in non-performing loans,” said Yvonne Zhang, China banking analyst of Moody’s Investors Service.
Potential losses from the two sectors could hit Chinese bank profitability, but the likelihood of a downgrade on their financial ratings was slim, partly because of the country’s robust economic growth, said Zhang, who covers a portfolio of Chinese banks including top lenders Industrial and Commercial Bank of China (0349.HK)(601398.SS) and China Construction Bank (0939.HK)(601939.SS) for Moody’s from Beijing.
“As long as the Chinese economy maintains its fast growth, we think the performance of major Chinese banks will not be too bad,” Zhang told clients at a briefing in China’s financial hub on Tuesday. “One positive is the quick policy response from the government, which could help mitigate systemic risk.”
The China Banking Regulatory Commission this month said “unwise lending” to local government investment units was among key risks faced by Chinese banks.
Chinese banks may have as much as 7 trillion yuan ($1.03 trillion) in loans to local government financing vehicles on their books, latest official data showed.
A correction in China’s property sector after the government introduced a range of policies to curb surging real estate prices could also hit banks in the next few years as heavily-leveraged home buyers may default on their loans.
All major Chinese banks have announced massive fundraising plans to replenish their capital bases after a lending spree last year to support the country’s 4 trillion yuan stimulus programme. (Reporting by Soo Ai Peng; Editing by Chris Lewis)