While the ratings agency admits that Chinese Banks have emerged from the recent financial crisis relatively unscathed on the back of brisk credit growth, investors must be wary of hidden credit risks as Asian banks grow rapidly.
At Fitch’s Asia Pacific Sovereigns and Banking Seminar in Beijing today, Fitch senior director and head of China bank ratings Charlene Chu says: “Credit growth of this magnitude inevitably places a strain on banks’ internal risk management, and raises concerns about a future deterioration in loan quality. The foremost challenges facing Chinese banks and regulators in 2010 will be balancing continued brisk growth amid accelerating capital burn.”
In 2009, Fitch says the level of credit growth for Chinese bank’s surpassed all forecasts put forth at the start of the year. Fitch now expects new loans outstanding to reach £860bn ($1.4 trillion) by year-end, representing close to 29 per cent of projected 2009 Chinese GDP.
Fitch says capital ratios for Chinese banks have also come under considerable pressure in 2009 from soaring loan growth. Lianhe Credit Ratings Senior Analyst Yang Jie says: “As a result, banks have ramped up their issuance of subordinated debt, and this is likely to continue into 2010.”