China Construction Bank and China Merchants Bank ace stress test conducted by DBS Bank
- China’s banking industry will need to raise 2 trillion yuan (US$291 billion) to replenish their capital in the event of three bear scenarios
China Construction Bank and China Merchants Bank are seen as the two most resilient mainlands banks capable of withstanding an extreme economic downturn because of their strong capital base, according to a stress test conducted by DBS Bank.
Only two other banks – Chongqing Rural Commercial Bank and Bank of Shanghai – passed the Singaporean bank’s stress test involving a total of 19 lenders, which represent 76 per cent of the assets in China’s banking industry.
China’s banking industry will need to raise 2 trillion yuan (US$291 billion) to replenish their capital in the event of three bear scenarios, Ken Shih, a banking and insurance analyst with DBS told a press conference on Wednesday in Hong Kong to announce the results of the study.
Specifically, the scenarios suppose a big drop in annual economic growth to 4 per cent (from more than 6 per cent currently) in 2020, to be accompanied by the bursting of a residential credit bubble that could trigger a 31 per cent plunge in property prices, and non-performing loans rate for private firms spiking by 5 percentage points from the current level to 10 per cent.
DBS conducted the study, zeroing in on these 19 banks, after gathering feedback from clients on investing in Chinese banking stocks.