June 22, 2017 / 7:44 AM / 2 months ago

Fitch: China Shadow Banking Crackdown Shows Initial Results

(The following statement was released by the rating agency) HONG KONG/TAIPEI/SINGAPORE, June 22 (Fitch) There are early signs that the recent tightening of regulatory enforcement in China's financial sector is cooling credit growth in the shadow-banking sector. The authorities appear committed - for now - to containing financial sector risks, which could be positive for system-wide stability if maintained over the medium-term, says Fitch Ratings. However, it remains to be seen if the authorities stay committed should economic growth slow faster than they are willing to tolerate. The authorities are at least likely to tread carefully, given the potential for policy mis-steps - such as the possible triggering of a credit crunch. The latest total social financing (TSF) data point to some migration of credit back on to banks' balance sheets, reversing the trend seen during the second half of 2016. Bank lending growth has held up, while non-loan TSF declined in May (see chart). The main drag on non-loan TSF was a fall in corporate bond issuance, which reflects weaker market liquidity and a rise in bank funding costs that has reduced incentives for banks to invest in corporate bonds and other non-loan financial products. Entrusted loans and bill acceptances also fell in May. <iframe allowfullscreen src="//e.infogram.com/crackdown_has_cooled_non_loan_financing?sr c=embed" title="Crackdown on Non-Loan Financing" width="550" height="647" scrolling="no" frameborder="0"> That said, monthly movements in TSF tend to be volatile. A rebound quickly followed on the last two occasions when regulatory tightening caused a monthly decline in non-bank TSF, in July 2014 and May 2016. Moreover, growth in overall TSF stock remains strong in yoy terms, and even rose slightly in April and May. The true test of the new policy stance will come if credit and economic growth start to slow down rapidly. The government is also unlikely to tolerate an extended slowdown in corporate bond issuance, which runs counter to its long-term ambitions to develop China's capital markets. One potential risk involved in trying to contain financial risks is a credit crunch. The slowdown in non-loan activity has already contributed to a tightening of the interbank market, highlighting liquidity pressures. The interbank lending rate averaged 2.88% in May 2017, 23bp higher than in April 2017 and 78bp higher than in May 2016. Deposit growth has also weakened, and M2 growth fell below 10% yoy for the first time in more than 30 years in May. The decision to relax the timeline for banks to conduct internal reviews of their practices, as reported by local media, suggests the authorities will at least be flexible in their implementation of enforcement, even if it does not signal a broad change in approach. They are likely to have been mindful that the original deadline on 12 June could have added seasonal tightness in liquidity. Larger banks have benefitted from tighter liquidity as they are net liquidity providers to the second-tier banks, and we expect an improvement in their net interest margins. Large banks should also be less affected by tighter regulatory enforcement, given their lower exposure in the shadow-banking activities and stronger deposit franchises. In contrast, smaller banks that rely more on the interbank market and shadow-banking activities are facing rising funding costs and capitalisation pressure as assets are brought back on to their balance sheets. Most banks reduced dividend payouts last year, and we expect them to remain low by previous standards. Some banks have plans to issue new capital, in some cases to support growth in on-balance sheet assets. Contact: Grace Wu Senior Director Financial Institutions +852 2263 9919 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Katie Chen Director Financial Institutions +886 2 8175 7614 Dan Martin Senior Analyst Fitch Wire +65 6796 7232 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. 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. 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