Steady growth in China should help avert a drawn-out crisis in its banking sector by aiding industrial consolidation and economic rebalancing, according to Standard & Poor’s.
“A prolonged crisis is unlikely,” analysts Naoko Nemoto and Liao Qiang wrote in a report due to be released today. “Growth should support the government and help the industrial sectors to resolve the problems relating to excess capacity over time. And that in turn should limit the systemic risk for Chinese banks.”
Economic expansion will hold at about 7 percent until at least 2016, the ratings company wrote. That would be more than any other Asian country during the next two years, according to forecasts compiled by Bloomberg. Decelerating corporate indebtedness, high profitability and core capital at the banks, and signs the government will step in both to curb excess credit growth and with capital injections if needed will also help the nation’s financial institutions absorb any losses, S&P said in the report.
S&P doesn’t rule out financial distress and severe losses during the next two to three years, according to the report, which cited high exposure to loss-making companies and any correction in the property market as risks.
“Certain parts of the shadow banking sector, notably trust companies, will continue to be the weak link in China’s financial system,” Tokyo-based Nemoto and Beijing-based Liao wrote. “Even if banks choose not to bail out distressed products, they aren’t insulated from contagion risk or collateral damage stemming from credit failures in the shadow banking system.”
Source: Bloomberg
