RETAIL BANKING | Staff Reporter, China

Outlook for Chinese banks 'stable' through 2018: Moody's

Thanks to strengthening government regulations and stable economic growth.

According to Moody's analyst Sherry Zhang, the government will remain keen on adopting coordinated policy measures to curb shadow banking and interbank activities and to address key imbalances in the financial system.

"As for the operating environment, steadying economic growth and recovering commodity prices will support corporate profitability and therefore the asset quality of the financial institutions," adds Zhang.

On the issue of liquidity, Moody's says that liquidity will stay broadly stable, with a tightening bias. In particular, the central bank's increasing use of liquidity facilities will improve its monetary management. And, the banks' funding structures will improve, because of their lower reliance on short-term wholesale funding. However, competition for deposits has intensified.

Here's more from Moody's:

For the banks, Moody's says that asset risks will stabilize, on the back of improving corporate profit and despite high corporate leverage. However, the risk of delinquencies remains elevated among some highly-leveraged and loss-making borrowers, as they transit to higher borrowing costs amid tighter shadow banking regulations.

The banks' capitalization levels will stay stable, underpinned by slowing asset growth and capital raising, and overall profitability remain under pressure from higher funding costs and lower fee income growth.

System liquidity will remain tight, especially among smaller banks, as a result of regulatory efforts to constrain the growth of corporate and interbank leverage and shadow banking.

Nevertheless, government support will remain strong for major banks, because financial and social stability remain key policy priorities.

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