Chinese state banks’ enhanced policy roles increases support prospects

Banks are expected to log moderate credit growth and no increase in risk appetite.

Chinese state banks’ enhanced policy roles have strengthened their links to the government and increased support prospects, says Fitch Ratings.

The state banks– Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (ABC), China Construction Bank (CCB), Bank of China (BOC), Postal Savings Bank of China (PSBC), and Bank of Communications (BOCOM)— are expected to continue to benefit from pre-emptive ordinary support if needed, such as regulatory forbearance or further capital injections.

“We believe the state banks’ policy roles have expanded as part of the government's increased support to the slowing economy and there have been more explicit statements of support from the authorities to the banks,” the ratings agency said in a report.

“Furthermore, we believe the government's ability to support the state banks has become less constrained relative to the level of the sovereign rating,” it added.

Whilst government initiatives may further strain the profitability of state banks, Fitch expects them to have moderate credit growth and no aggressive increase in risk appetites.

Together with upcoming capital injections and other pre-emptive government support, Fitch believes that the state banks can sustain their capitalisation.