Lockdowns threaten Chinese banks' loan quality: analyst | Asian Business Review
450 views
Photo courtesy of Denis Nevozhai (Unsplash)

Lockdowns threaten Chinese banks' loan quality: analyst

Exposure to the ‘vulnerable’ 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, 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. 

China is currently expected to strictly adhere to a "dynamic zero" policy to manage the pandemic until 2023.

Such control measures have dampened banks’ loan demand. Loans only grew 4.7% from end-2021 to April 2022, buoyed only by corporate loans related to infrastructure and green loans. 

Residential mortgage loans inched up by only 1%, and consumption loans even contracted 4% over the four months.

Engineering & construction vulnerabilities

China’s 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’ loan books.

“Order 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,” Fitch analysts and directors Elaine Xu, Vivian Xue, and Grace Wu wrote in a wired report.

This is because Chinese E&C firms typically collect only a small portion of a project’s 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.

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.

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

On the upside, it is estimated that most of individual banks’ lending to the sector is by large state-owned firms, though data on this is not publicly available. 

“That 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,” Fitch added.

Follow the link for more news on

Rumah Sakit Kanker Dharmais memimpin inovasi pelayanan kanker di Indonesia

Direktur Utama RS Kanker Dharmais Soeko Werdi Nindito Daroekoesoemo mengungkapkan teknologi canggih dan tujuh program unggulan untuk perawatan kanker.

BRI Life mengandalkan kanal bancassurance di tengah permintaan asuransi yang meningkat

Hingga November 2023, kanal bancassurance berkontribusi sebesar 81% dari total pendapatan premi BRI Life.

Allianz Syariah menawarkan asuransi Syariah untuk seluruh masyarakat Indonesia

Tingkat literasi dan inklusi keuangan syariah yang masih rendah mendorong perusahaan menerapkan langkah jangka pendek dan panjang.

Aplikasi blu oleh Group BCA memperluas ekosistem digital melalui BaaS

Strategi tersebut telah berhasil meningkatkan transaksi dan membangun kepercayaan nasabah sebesar 53,4% sepanjang 2023.

Titan-titan asuransi dan perbankan Asia berjanji untuk mengambil tindakan terhadap perubahan iklim

Pemimpin-pemimpin asuransi dan perbankan bergabung untuk mengatasi perubahan iklim, dengan menekankan perlunya investasi berkelanjutan dan strategi transisi yang inklusif.

RUU data kesehatan Singapura mewajibkan pengaturan pemberian informasi

Untuk memastikan pengungkapan dan pemberian data, Kementerian Kesehatan dapat memberlakukan denda hingga $1 juta atas ketidakpatuhan.

Asuransi melonjak berkat lonjakan wisatawan Hong Kong

CEO Jim Qin dari Zurich Insurance menyatakan tren liburan yang panjang pada warga Hong Kong di 2023, meningkatkan penjualan asuransi perjalanan.

Bank Tabungan Negara (BTN) bertekad meningkatkan pinjaman kepemilikan rumah syariah

Hingga November 2023, aset BTN Syariah telah mencapai Rp49 triliun.