China’s financial system may be ‘less resilient’ than it appears, some banks may require recapitalisation: S&P
- People’s Bank of China has a ‘better handle’ on country’s financial risk, S&P Global Ratings says
- New regulations likely to be introduced to address vulnerability to governance, liquidity and contagion risks: S&P
China's financial system “may be less resilient” than it appears and some banks may require “sizeable recapitalisation” following an analysis of the central bank’s stress test of the country’s 30 biggest banks last year, according to S&P Global Ratings.
“Chinese banks are more vulnerable to idiosyncratic risks, arising from governance related issues and risk management deficiency, than systemic ones,” S&P credit analyst Ming Tan said in a research note. “Bank acceptance exposure and delayed financial reporting are among the key indicators of such risks. The quality of information and corporate action signals are important too.”
The People’s Bank of China gained a “better handle” on the financial risks and adopted more realistic assumptions in its 2019 stress test scenario, including bigger increases in bank funding costs, Tan said.
The stress tests found that five of the 30 banks tested would fail to meet a 5 per cent common equity tier ratio, an important measure of a bank’s financial health. Seven would fail to meet a 6 per cent threshold, it showed.