RETAIL BANKING | Staff Reporter, China

Chinese AMCs' role in bank restructuring beneficial but risky

Higher asset risks can put pressure on standalone credit profiles.

China’s asset management companies (AMCs) are widening their roles in the restructuring of regional banks, a Moody’s investors Service report said, but it could drag down their standalone credit profile through higher asset risks and leverage.

The AMCs’ expanding role is a positive for the banking system as it boosts the government’s ability to preempt contagion from embattled banks and uphold market discipline, said senior analyst David Yin.

In addition, their participation in the restructuring partially mitigated the risk of moral hazard that could come with saving the banks, Yin noted.

However, this could place their equity investments in banks at high risk given high uncertainties on the recovery prospects of these banks. Domestic AMCs will be more affected than the four state-owned AMCs because of their small size, and may need capital and funding support from their parent or local government.

That said, given their importance in resolving financial risk, AMCs will likely receive strong government support in times of need, which will mitigate the rising pressure on their standalone credit profiles, the report concluded.

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