Chinese banks' struggling bottomlines aggravates capital crunch

The growth of risk-weighted-assets continues to outpace conventional assets.

Chinese banks are unlikely to plug their capital shortfalls as shrinking earnings continue to heap pressure on capital ratios.

Also read: Chinese banks raise record-high $48b in Q1 to plug capital crunch

The growth in the banks’ risk-weighted-assets (RWA) continues to outpace that of net profit and assets, according to a report from Fitch Ratings, highlighting an unabating capital crunch that has been further aggravated by calls for banks to lend more to support the decelerating economy. The five large state banks, in particular, have been asked to meet a minimum growth target of 30% for inclusive finance loans.

“Fitch believes explicit intervention from the authorities over bank lending may impact governance and risk management practice...and the banks may not be appropriately compensated for the additional risks that they are taking on,” the firm said in a report. “

The size of inclusive finance loans was around $1.33t (CNY9t) by end-2018, representing less than 7% of system loans. This represented around 2%-5% of loans for the five large state banks, in which they have committed to achieving this growth target for 2019.

“Fitch believes the large state banks still face a capital shortfall in complying with medium-term total loss-absorbing capacity (TLAC) and other buffer requirements, even in the absence of any aggressive acceleration in loan growth.”