China’s small lenders bear brunt of risks in banking sector as economic slowdown exposes weak fundamentals
- Smaller banks face pressure as their bad loans are exposed to an economic slowdown caused largely by pandemic restrictions
- Banks’ recent increase of aid to property developers under the guidance of the central government could also increase their burden
China’s small lenders will bear much of the risk in China’s banking industry, as an economic slowdown caused by the country’s zero-Covid policy exacerbates their weaker fundamentals, according to credit rating agencies Moody’s and CCXI.
She was speaking at the online CCXI & Moody’s China Credit Outlook Conference on Tuesday.
China’s town-level and small rural banks are more exposed to risk than their larger peers even though their assets account for less than 1 per cent of the total among all Chinese banks, according to Nicholas Zhu, vice-president at Moody’s.
The problem is if they get into trouble, there is a risk of contagion.
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“We can’t say the risk is small,” he said. “Small rural financial institutions have potential systemic risks” which could spread to the wider financial sector.
