Deterioration of asset quality and potential risks from wealth management products make for a gloomy outlook for mainland lenders next year, Fitch Ratings said yesterday.
The outlook for banks in the Asia-Pacific is stable, but China is one of the weakest spots in the region, the global credit rating agency said in a report.
The agency warned the impact on mainland banks' credit quality and solvency resulting from rampant credit growth had surfaced.
"Rising delinquencies are expected to persist in 2013," Fitch said.
Non-performing loans of mainland banks rose for a fourth consecutive quarter in the third quarter to 478.8 billion yuan (HK$593.4 billion) amid the slowdown in economic growth, China Banking Regulatory Commission data shows.
Fitch also warned activity in wealth management products had the potential to hurt mainland banks, while the risk of a hard landing would be negative for their ratings.
"The products' short tenors, frequent mismatching of assets and liabilities, and poor disclosure about underlying assets present a significant risk to the issuing banks," it said.
Analysts have been worried about risks related to the mainland's shadow banking sector, referring to off-balance-sheet loans, underground lending and wealth management products.
Rival rating agency Moody's Investors Service said the outlook for the banking system remained stable but also warned against deterioration in asset quality.
"We expect more visible non-performing loan deterioration to surface throughout 2013," the agency said in a report yesterday.
Lending to export-related industries in coastal regions had the highest risk, it said, and sectors with overcapacity would continue to be the major sources of problem loans next year.
The slowdown in economic growth has also raised concern over Hong Kong banks' lending to mainland enterprises.
Norman Chan Tak-lam, the chief executive of the Hong Kong Monetary Authority, said while loans to mainland enterprises had been increasing in recent years, Hong Kong banks were conservative in their risk management.
"Of the loans to mainland companies, 60 per cent are backed by collateral or are guaranteed loans," Chan said.
The loans were mainly to big mainland firms or the mainland subsidiaries of Hong Kong entities, reducing their risk, he said.