Fitch warns China on bank risks
Baku, July 27 (AZERTAC). Fitch Ratings said Friday that China`s banking sector faces growing risks from small banks` aggressive issuance of wealth management products to attract and retain depositors.
At the end of the second quarter of this year, such wealth management products stood at an estimated 10.4 trillion yuan ($1.6 trillion), or 11.5% of total deposits, largely unchanged from the first quarter, but recent issuance has been driven by non-state banks, while state banks have been reining in activity, the ratings agency said in a press release.
"There was a dramatic shift in issuance patterns in the second quarter this year, with state banks` posting a CNY1 trillion contraction and small banks posting a nearly equivalent rise," said Charlene Chu, head of Chinese bank ratings at Fitch.
This is a result of intensifying competition for deposits, and Chinese banks, particularly small non-state-owned entities, have been rapidly expanding their wealth management product offerings.
Small banks` weaker funding and liquidity relative to state-owned peers could make them more susceptible to repayment issues related to their wealth management products, Fitch said.
"The fact that smaller, less resilient banks are now driving activity means that overall WMP risks are rising," said Chu.
Liquidity risk is the primary concern for wealth management products, but product credit risk also remains an issue, according to Fitch.
"Regulators have cracked down on the amount of loans moving into products, but a myriad of credit-related assets disguised as non-credit still appear," Chu said.
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