October 9, 2017 / 1:13 AM / 2 years ago

Fitch: China Making Progress in Shrinking Shadow Banking

(The following statement was released by the rating agency) TAIPEI/HONG KONG/SINGAPORE, October 08 (Fitch) China's shadow-banking sector has shrunk in response to the regulatory clampdown launched in early 2017, which could address certain risks to the financial system if it continues over the medium term, says Fitch Ratings. Declining shadow-banking activity could create potential liquidity shortages, but the recently announced targeted cut to the required reserve ratio (RRR) illustrates that the authorities will use policy tools to guard against a significant impact on prioritised sectors. System-wide inter-bank assets had fallen by 13.8% yoy as of end-August 2017, while interbank liabilities were down by 1.6%, according to data from the China Banking Regulatory Commission (CBRC). This was the first drop in both interbank assets and liabilities since 2010. The decline was sharpest among joint-stock commercial banks, which had been more aggressive in interbank activities. Their inter-bank assets were down by 45% at end-August 2017 from the start of the year. Entrusted loans fell for the first time since 2008 over the same period. Meanwhile, growth in wealth management products (WMPs) continued to slow, with the interbank WMP balance falling by CNY2.2 trillion from January to August 2017. Fitch estimates the outstanding WMP balance has declined by around 10% so far in 2017. Shadow banking remains a key source of risk to financial stability following years of rapid growth that has increased the interconnectedness of the system and made some banks vulnerable to strains on funding and liquidity. Outstanding WMP balances, for example, reached roughly 40% of GDP at end-2016, having grown by over 40% per year on average since 2013. The CBRC reiterated its commitment to tackling these risks in late September, emphasising its role in identifying threats and implementing necessary mitigating measures. The regulatory tone was strong, stating that any failure by the regulators to spot and handle risks in a timely manner would be viewed as a dereliction of duty. Shadow banking therefore appears likely to continue to face greater regulatory scrutiny, at least while the authorities remain comfortable with economic growth. Fitch expects the economy to start slowing in 3Q17, but the deceleration is likely to be gradual, with GDP forecast to grow by 6.3% in 2018, down from 6.7% in 2017. Liquidity shortages triggered by a deceleration in shadow-banking activity are a potential risk to the growth outlook, but the People's Bank of China's (PBOC) has highlighted that it will continue to use its various monetary policy instruments to keep liquidity stable and maintain its "prudent and neutral" policy stance. One example of targeted support to prevent tighter liquidity from having adverse effects on the real economy is the PBOC announcement on 29 September of a cut to the RRR for banks that meet criteria on lending to rural and micro enterprises. The RRR cut is likely to encourage banks to support inclusive finance, which is an important component of the authorities' reform agenda. A bank's RRR will be lowered by 50bp if loans to support inclusive finance exceed 1.5% of its total loan balance or its new lending in the previous year. Most banks are likely to reach this 1.5% threshold and be qualified for 50bp cut, but only some will hit the 10% threshold required for a larger 150bp. The adjustments will not be effective until 1 January 2018, but the impact on lending to rural and micro enterprises is likely to come through sooner as banks position themselves to qualify for the cuts. This would alleviate pressure on borrowing costs for targeted sectors, while maintaining a grip on banking sector risks. Contact: Katie Chen Director Financial Institutions +886 2 8175 7614 Fitch Australia Pty Ltd, Taiwan Branch Suite 1306, 13F, 205, Tun Hwa North Road Taipei City, Taiwan Grace Wu Senior Director Financial Institutions +852 2263 9919 Dan Martin Senior Analyst Fitch Wire +65 6796 7232 The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below