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MARKETS | Staff Reporter, China
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China's banking sector named as the most exposed to credit challenges

From surveyed investors, intermediaries, and debt issuers.

There was general consensus among respondents in Hong Kong and Singapore Moody's Investors Service has asked that of the major banking systems in Asia, China’s will face the largest fundamental pressure in 2015.

According to a research note from Moody's Investors Service, it recently held its annual Asia Pacific Outlook Briefings in Hong Kong and Singapore in late January.

The events brought together the largest investors, intermediaries and debt issuers across the region, with 115 participants in Hong Kong and over 130 in Singapore. The events raised some important trends, topics and risks that are likely to shape the outlook for Asia Pacific credit in 2015.

When asked which banking sector in the region is the most exposed to downside pressure, China accounted for 48% and 61% of polling results in Hong Kong and Singapore, respectively.

Here's more from Moody's Investors Service:

On average, roughly one fifth of those surveyed viewed India and ASEAN banking systems as vulnerable, which we believe reflects concerns surrounding the weak capitalization of public sector banks in India, and high household leverage in ASEAN.

We hold a stable outlook on China’s banking system;4 primarily reflecting the significant policy support from the authorities, and the still considerable loss-absorbing capacity of the major domestic banks.

On the other hand, we expect the asset quality of Chinese banks to deteriorate, and profitability will come under downward pressure, due to the country's slower economic growth, and the impact of further financial deregulation.

However, if China's GDP grows at a much slower rate than we expect, Chinese banks could face downward ratings pressure, particularly if the growth shock is characterized by a disorderly unwinding of systemic leverage, or a deterioration in government finances due a large, material crystallization of contingent liabilities.

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