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Chinese banks' good capital buffers mask 3 key weaknesses
2017 might prove more difficult in terms of solvency.
According to Natixis Research Global, although capital buffers look sufficient for regulatory standards, three key weaknesses are masked.
"Firstly, with special mention loans included, NPL Coverage ratio would fall below regulatory limit (150%) to 53%, indicating provision may not be sufficient. Secondly, if off balance sheet WMPs are included, asset-to-equity ratio would increase by 15%, meaning that the leverage is higher than it appears. Thirdly, no organic capital is created. Therefore, 2017 might prove more difficult in terms of solvency for Chinese banks than it appears on paper."
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