Rapid Loan Growth Pressuring China’s Banking System
The rapid rise in loan growth in China in the first half of 2009 is likely to intensify the pressure on the banking system, Standard & Poor’s says. In a new Credit FAQ, S&P says that asset quality will probably deteriorate this year while credit risks mount.
Key findings:
- Asset quality is likely to further slip in 2009, but should remain highly manageable. The severity of pressure depends on macroeconomic conditions.
Asset quality could deteriorate sharply in the next two to three years if the economic slowdown is protracted in China.
- The Chinese banking system should have the strength to deal with the deterioration in asset quality, based on our current economic outlook. But the credit profiles of banks are likely to diverge.
- Despite a remarkable transformation in the past decade, corporate governance remains an important issue for Chinese banks at a time when their risk management capability is still developing.
- Chinese policymakers are likely to stay committed to market-oriented banking reforms despite some setbacks and current economic conditions.
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