TEXT-Fitch China broad credit picks up in Q312, but growth has limits

Thu Nov 8, 2012 3:40am EST

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(The following statement was released by the rating agency)

Nov 08 - Fitch Ratings says faster growth of broad credit in Q312 was one factor behind the recent improvement in Chinese economic data. In a comment published today, the agency highlights that, after slowing from Q411 to Q212, broad credit is back on track to surpass CNY17trn (USD2.7trn) in 2012.

Fitch's measure of broad credit includes shadow and offshore sources omitted from the central bank's official total societal financing metric.

"This marks the fourth year in a row that net new credit will exceed one-third of GDP," said Charlene Chu, Head of Chinese banks' ratings at Fitch.

At current growth rates, by 2013 China's banking sector assets will have expanded by nearly USD14trn since 2008. This is equivalent to replicating the entire US commercial banking sector in just five years. Such massive balance sheet expansion has limits, according to the agency.

"Rising leverage either will swamp borrowers' ability to repay, or banks' funding and capital needs will fall short of existing resources," Chu said.

The agency expects capital constraints to become more binding in 2013, particularly for mid-tier and city commercial banks. Dividend cuts are possible as banks struggle to maintain existing levels of capitalisation amid fast growth and thinning profitability.

The report, "Chinese Banks: Credit Growth Accelerates in Q312, but Continued Aggressive Expansion Has Limits", is available on www.fitchratings.com or by clicking on the link below.

Link to Fitch Ratings' Report: Chinese Banks: Credit Growth Accelerates in Q312, but Continued Aggressive Expansion Has Limits

here

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