Chinese financial firms' asset quality under duress amidst sluggish credit growth

Credit pressure variations affect small banks, distressed asset management and leasing firms.

A slowing domestic credit growth and increasing trade tensions with the US will put pressure on China’s GDP and asset quality, a Moody’s report showed.

Small banks, distressed asset management and leasing companies are more vulnerable as credit pressure varies.

"Our outlook for Chinese financial institutions over the next 12 months is negative, because slowing economic growth and trade uncertainties result in a challenging operating environment for financial institutions," says Sonny Hsu, a Moody's vice president and senior credit officer.

Chinese authorities will likely maintain open monetary policies as banks’ net margins and insurers’ investment returns will depend on low interest rates and bond yields. However, funding costs will be slashed for distressed asset management companies, leasing companies, and securities companies.

On the other hand, larger banks and insurers’ good capitalisation and securities firms’ low balance sheet leverage offset concerns over the more challenging operating environment. Moody’s also expects government support for larger banks, state-owned distressed asset management firms and bank-owned leasing companies to remain strong.

Photo courtesy of Pexels.com.