Hong Kong, June 22, 2016– Moodys Investors Service states that the surge in investments in
loans and receivables by Chinese banks, while supportive of profits
and capital generation in the shortshort-term, raises asset quality,
liquidity and rate of interest risks in the long term.
Information from the 26 listed banks themselves shows that investments in these
possession classes jumped to RMB10.5 trillion at end-2015 from
RMB2.5 trillion at end-2012, led by joint-stock
commercial banks and local banks.
The high yields and low provisioning costs of these financial investments
have made it possible for continued profits growth for these banks in an environment
of increasing credit costs and decreasing net interest margins,
says David Yin, a Moodys Assistant Vice President and Expert.
However, the particular features of these financial investments indicate
they may obscure the true extent of the banks direct exposure to the supreme
borrowers, while the lower provisioning and capital requirements
lowers the banks resilience to prospective credit shocks,
Yin was speaking on Moodys just-released report Chinese
Banks– Investments in Loans and Receivables Boost System Risks.
Of the RMB10.5 trillion balance of these financial investments at end-2015,
68% comprised trust and possession management schemes developed by
non-bank monetary institutions, 13% wealth management
items, and 19% bonds issued by federal governments, financial
organizations and corporates.
For trust and management schemes– the bulk of the banks
financial investments in loans and receivables– Moodys notes that
banks can utilize these to repackage their existing loans into financial investment
At the very same time, banks can treat financial investments with credit enhancement
steps from other monetary organizations as interbank possessions,
and examine the credit threat based upon the credit profiles of the monetary
organization counterparties, instead of on those of the supreme
Furthermore, the widespread usage of credit improvement boosts
interconnectedness of monetary organizationsbanks, and thus the danger
that a single organizations failure triggers concerns over broader
Finally, Moodys also sees threats to the banks liquidity
positions– with them moneying their longer-term investments
from short-term interbank borrowings– and interest-rate
danger in case of an unforeseen liquidity crunch.
Among the 26 banks that have actually disclosed information on their financial investments in loans
and receivables, Moodys views joint-stock commercial
banks and regional banks as the majority of exposed, offered their active participation
as both investors and pioneers.
At end-2015, financial investments in loans and receivables by the
9 noted joint-stock commercial banks and the 12 local noted
banks amounted to 19.8% and 19.2% of their
total possessions respectively, compared to 2.7% for the
big 5 state-owned banks.
Subscribers can access the report at:
The report might also be found through Moodys topic page Chinas
Trilemma: Development, Reform and Stability, available
This page offers a centralized source for Moodys research study related to
essential credit concerns in China as the countrys macroeconomic story continues
Recent Moodys publications associating with Chinas Trilemma consist of:
bull; China Credit: Authorities Have Tools to Prevent Financial Crisis,
however Erosion of Credit Quality Likely
bull; China Home amp; Casualty Insurance coverage: Family Earthquake
Insurance Plan Supports Business Growth, Raises Rates Challenges
bull; Chinese Banks Resumption of Nonperforming Loan Securitizations
Is Credit Positive
bull; Innovation Services– China: Internet Companies See
Higher Profits Development from Online-to-Offline Platforms
bull; Construction Business– China: Earnings Development Is Slowing
Slowly Together with Financial Growth and Reform
bull; Sub-Sovereign: Chinese Regional and Regional GovernmentCity government
Financial obligation and Financial resources Photo
bull; Federal government of China: Sovereign Exposed to Sizeable,
Increasing Contingent Liabilities
bull; Chinas New Guidance on Loan-Beneficiary Rights Transfers
Is Credit Favorable for Banks
bull; China Property Focus– April 2016
bull; Inside China– April 2016
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Asst Vice President – Expert
Financial Institutions Group
Moodys Investors Service Hong Kong Ltd.
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88 Queensway Hong Kong China( Hong Kong SAR.) REPORTERS: (852 )3758 -1350 CUSTOMERS: -LRB-852-RRB-Â 3551-3077 Moodys: Chinese banks increasing financial investments in loans and receivables increase system threats