Moody's highlights plight of small units

Sweeping reform of the mainland's banking system looks set to widen the disparity of credit risk among mainland banking institutions, according to US credit-rating agency Moody's.

'The large Chinese banks may continue to receive strong government support,' it said in an annual report.

'Support to small and medium-sized banks may further be weakened,' it added.

'Consequently, the rating outlook for the Chinese policy banks and the state commercial banks is stable, but the outlook for the other commercial banks is negative,' it said.

The agency noted that Beijing had undertaken a series of measures over the past year aimed at bolstering regulatory supervision, raising capital levels and reducing problem loans.

These include restructuring the central bank to lessen interference from local authorities, injecting 270 billion yuan (about HK$251.1 billion) into the four big state banks to boost their capital base, and setting up asset-management companies to take over one trillion yuan of problem loans.

'Together, they represent the Chinese Government's biggest and most aggressive attempt ever to overhaul the nation's deeply-impaired financial system,' Moody's said.

However, it said the government's recent efforts to close troubled financial institutions including the Guangdong International Trust and Investment Corp had prompted depositors to shift their accounts to big state banks.

The agency said smaller banks, particularly city-based commercial banks and rural and urban credit co-operatives, had found it increasingly difficult to source and retain deposits.

BANKING