Topic: Banking

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We analyzed data from the H1 2022 earnings reports of China’s 59 listed lenders to gauge the impact that distress in the property industry is having on the banking sector. Our conclusion is that overall, China’s banks will be able to weather the turmoil with minimal disruption.

The wealth management product (WMP) market is changing rapidly in China, and it has huge implications for how credit creation, particularly in shadow banking channels, is funded (or not).

As banks strive to comply with wealth management product (WMPs) rules, they’re moving WMP assets back on balance sheet.

The mechanisms for that FX management and deployment have remained murky over the past several months – but our reading of bank earnings reports suggests a key emerging channel for FX management is the accumulation of precious metals.

China’s banks have been actively replenishing their capital for the last three years, a task made more urgent by the pandemic. The RMB 200 billion of special purpose bonds (SPBs) provincial governments have been allocated to help recapitalize their banks are a useful expedient to sustain credit growth and support bad loan disposals.

Chinese regulators are in a bind when it comes to the ongoing recapitalization of the banking system; hard choices will need to be made. Banks need to raise capital to prepare for the coming surge in nonperforming loans (NPLs), but that’s complicated by a rule prohibiting banks from selling new shares at less than the value of net assets per share (book value).