trending Market Intelligence /marketintelligence/en/news-insights/trending/pvM_F82sexYT2fJLP_mFZg2 content
Log in to other products

Login to Market Intelligence Platform


Looking for more?

Contact Us

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List

Worsening credit quality to hit China's small banks harder than larger peers

StreetTalk – Episode 70: Banks' Liquidity Conundrum Could Fuel M&A Activity

Street Talk Episode 70 - Banks' Liquidity Conundrum Could Fuel M&A Activity

StreetTalk – Episode 69: Banks left with pockets full of cash and few places to go

Street Talk – Episode 69: Banks left with pockets full of cash and few places to go

Worsening credit quality to hit China's small banks harder than larger peers

The credit quality of China's midsize and small banks is set to deteriorate more quickly than their larger state-owned peers in 2020, according to S&P Global (China) Ratings analysts.

While both large and small banks are facing a slowing economy, rising borrower defaults, intensifying competition from the nonbank sector and tight market liquidity, smaller lenders are likely to be hit harder as they are less capitalized to cushion the shock from declining asset quality and lower profitability, analysts said.

"The nonperforming [loan] ratios of smaller banks will be more volatile compared to the largest state-owned lenders," said Li Ying, head of financial institutions ratings at S&P Global (China) Ratings at a webcast for Chinese largest banks' credit quality on Jan. 9.

Li added that large lenders are more diversified in terms of geographical distribution, client base and business scope and will become even more competitive over the next few years.

Meanwhile, small and mid-sized banks will be increasingly exposed to credit risk, as they also face legacy bad debt problems due to under-provisioning for troubled loans in previous years, according to Li.

High funding cost and tight liquidity are also expected to continue for smaller banks this year following several bank failures in 2019.

Beijing has sharpened its scrutiny of small banks since mid-2019 as the government-led seizure of city commercial bank Baoshang Bank Co. Ltd. and state-backed bailouts of some other city commercial banks sparked worries of a domino effect among small banks.

The government action also led to a contraction of the interbank business for smaller city and rural commercial banks, who are facing fewer willing lenders and higher funding costs in the interbank market.

Li Zheng, a credit analyst with the rating agency, believed that megabanks are better equipped to deal with liquidity challenges due to stable operations and resilient profitability.

The rating agency also issued its first rating on one of the "big six" state-owned banks, Postal Savings Bank of China Co. Ltd., with an AAA issuer credit rating with a stable outlook. The rating incorporates a one-notch uplift from the lender's standalone credit profile.

The analysts pointed to Postal Savings Bank of China's retail deposit-dominated funding structure and strong asset quality as key strengths in a slowing economy.

For the three year from 2016 to 2018, the lender's customer deposits accounted for 93.80% of its total liabilities in average, which compared to an average of 79.96% for the six state-owned banks combined, whereas its three-year average nonperforming loan ratio was at 0.83%, much lower than the average of 1.46% for the six banks combined.