{"id":837,"date":"2022-05-27T11:48:45","date_gmt":"2022-05-27T11:48:45","guid":{"rendered":"https:\/\/grandcityinvestment.com\/?p=837"},"modified":"2024-10-02T16:15:20","modified_gmt":"2024-10-02T16:15:20","slug":"lockdowns-threaten-chinese-banks-loan-quality-analyst","status":"publish","type":"post","link":"https:\/\/grandcityinvestment.com\/se_SP\/lockdowns-threaten-chinese-banks-loan-quality-analyst\/","title":{"rendered":"Lockdowns threaten Chinese banks’ loan quality: analyst"},"content":{"rendered":"

Lockdowns threaten Chinese banks’ loan quality: analyst<\/h1>\n
\n

Exposure to the \u2018vulnerable\u2019 engineering & construction sector could deteriorate asset quality.<\/strong><\/p>\n

Measures curbing the spread of COVID-19 cases raise the asset-quality pressures faced by Chinese banks, Fitch Ratings warned.<\/p>\n

Pandemic control measures in several regions, including Shanghai, have curtailed economic activity, and Fitch Ratings has revised its China growth forecast for 2022 to 4.3%, from 4.8% previously. Forecasts could drop more if containment measures fail to bring new COVID-19 outbreaks under control quickly or if the easing of current restrictions is delayed, the ratings agency warned.<\/p>\n

China is currently expected to strictly adhere to a “dynamic zero” policy to manage the pandemic until 2023.<\/p>\n

Such control measures have dampened banks\u2019 loan demand. Loans only grew 4.7% from end-2021 to April 2022, buoyed only by corporate loans related to infrastructure and green loans.<\/p>\n<\/div>\n

Residential mortgage loans inched up by only 1%, and consumption loans even contracted 4% over the four months.<\/p>\n

Engineering & construction vulnerabilities<\/strong><\/p>\n

China\u2019s control measures have notedly increased profit pressures on local companies, with the engineering & construction (E&C) sector being named as particularly vulnerable to further COVID-19 outbreaks, according to Fitch. The sector accounts for 2% to 4% of banks\u2019 loan books.<\/p>\n

\u201cOrder books for the sector appear robust, in our view, and at the aggregate level we do not expect financing to pose major issues for project implementation. However, activity has been subdued, most likely as a result of operational challenges posed by the control measures, and cash flow has consequently not been released,\u201d Fitch analysts and directors Elaine Xu, Vivian Xue, and Grace Wu wrote in a wired report.<\/p>\n

This is because Chinese E&C firms typically collect only a small portion of a project\u2019s revenue as a down payment, and must come up with most financing on their own before project completion when the remaining funds are paid. Smaller E&C firms are especially more exposed.<\/p>\n

However, should they weather the pandemic maelstrom, sales momentum is sighted to improve in the second half of 2022 and when the pace of construction work picks up as COVID-19 restrictions ease.<\/p>\n

But if restrictions persist for more than a few months, it may be challenging to ramp up activity going into China\u2019s winter months, leading to liquidity pressures that could mount for E&C firms, Fitch warned.<\/p>\n

On the upside, it is estimated that most of individual banks\u2019 lending to the sector is by large state-owned firms, though data on this is not publicly available.<\/p>\n

\u201cThat said, if public-health restrictions result in significantly greater economic disruption than we envision under our baseline scenario, we believe asset quality deterioration amongst construction loans and other vulnerable segments, such as property development and consumer lending, could reduce the headroom on our assessments of banks’ asset quality and capitalisation,\u201d Fitch added.<\/p>\n","protected":false},"excerpt":{"rendered":"

Lockdowns threaten Chinese banks’ loan quality: analyst Exposure to the \u2018vulnerable\u2019 engineering & construction sector could deteriorate asset quality. Measures curbing the spread of COVID-19 cases raise the asset-quality pressures faced by Chinese banks, Fitch Ratings warned. Pandemic control measures in several regions, including Shanghai,…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[555],"tags":[595,596,594],"class_list":["post-837","post","type-post","status-publish","format-standard","hentry","category-hong-kong","tag-chinese-banks-loan","tag-liquidity","tag-lockdowns"],"yoast_head":"\nLockdowns threaten Chinese banks' loan quality: analyst - Grand City Investment Ltd<\/title>\n<meta name=\"description\" content=\"Lockdowns threaten Chinese banks' loan quality: analyst\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/grandcityinvestment.com\/lockdowns-threaten-chinese-banks-loan-quality-analyst\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Lockdowns threaten Chinese banks' loan quality: analyst - 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