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China’s top lenders tout limited exposure to western banking crisis

China’s largest banks say they’ve escaped unscathed from the monetary disaster within the US and Europe, following the collapse of Silicon Valley Financial institution and Credit score Suisse.

China’s prime lenders — Industrial and Industrial Financial institution of China, China Building Financial institution, Agricultural Financial institution of China and Financial institution of China — have all reported there was no direct injury to their books from final month’s emergency rescue of Credit score Suisse by UBS and failures within the US banking sector.

“Even from an oblique or spillover impact perspective, the influence [to China’s banking sector] could be very restricted,” mentioned Ji Zhihong, vice-president of the nation’s second-largest financial institution CCB at a briefing final week, when all the primary banks reported sturdy earnings.

China’s banks and different monetary establishments are nonetheless reporting to regulators the outcomes of stress-testing towards what they see as a possible minefield of recent dangers that features publicity to European and regional US banks. In keeping with workers finishing up the exams, solely restricted publicity has been discovered.

The scrutiny highlights lingering market considerations over Chinese language banks’ money administration and liquidity towards the backdrop of rising geopolitical pressure and monetary system turbulence.

Zhang Yi, vice-president of Financial institution of China, which has the biggest quantity of international publicity, mentioned that whereas his financial institution had not been hit by the disaster, it nonetheless deliberate to regulate offshore belongings and deposits.

“It doesn’t matter what the explanations have been for the problematic international establishments, it will definitely leads to stress and runs on deposits . . . we’ll be sure that maturity and pricing between belongings and deposits has no large mismatch,” he mentioned.

The most important lesson for China’s monetary system planners and regulators is to not “create the setting” that places banks into the same place as SVB and Credit score Suisse, mentioned Chen Lengthy, co-founder of Beijing-based analysis firm Plenum.

“The unconventional change of financial coverage is a really dangerous thought. If you must elevate rates of interest by 300 [basis points] in a yr, that’s undoubtedly going to trigger quite a lot of pressure on the banking system. Some banks, if they’re properly managed, have methods to arrange. However not everyone seems to be properly managed.”

ICBC, the world’s largest financial institution, reported internet revenue of Rmb360bn ($52bn) for 2022, up 3.5 per cent on the prior yr. The opposite prime banks reported equally sturdy — or higher — revenue progress.

The online curiosity margin, a key gauge of financial institution profitability, remained regular or eased barely for the highest banks, suggesting resilience of their credit score books.

The outcomes got here regardless of subdued financial progress in China and through an unprecedented downturn and excessive ranges of company debt within the property sector, a significant driver of the financial system.

The banking disaster has dented China’s religion within the knowledge of regulators in Europe and the US. Chinese language regulators had been following measures akin to requiring banks to arrange “residing wills” after chapter or takeover occasions.

“The framework of regulating banks globally now seems to be inadequate no less than,” Chen mentioned.

“The irony is that the Swiss are considered as leaders in find out how to regulate banks. Then Credit score Suisse, the [country’s] second-largest financial institution failed,” he added.

Regardless of higher than anticipated monetary outcomes, China’s prime lenders every warned of persistent dangers, stemming principally from the property sector.

At CCB, the non-performing mortgage ratio for property practically doubled yr on yr. China’s actual property sector has been rocked by a sequence of developer bond and mortgage defaults, as stringent debt management on the actual property sector choked the trade’s liquidity strains.

“The property sector will take time to get better, so the hangover on asset high quality will final for some time,” mentioned Liu Jiandong, chief danger officer on the Financial institution of China.