Chinese banks are facing slowing loan growth, tightening margins and rising credit risks at the start of the new year as Beijing works to free liquidity for lending, which is at its lowest pace in more than 15 years, according to an S&P Global Market Intelligence report Monday (Jan. 3).
China is working to lower banks’ required reserve ratio and a 5-basis-point cut to a benchmark interest rate late last year and will keep banks’ net interest margins at multiyear lows. Softening economic growth, the ongoing debt problems among property developers and the end of loan repayment extensions for small businesses will boost the credit risk for lenders, especially the ones who have more concentrated loan portfolios, analysts said.
“We expect China to use more policy-easing measures — such as proactive fiscal policy, prudent monetary policy as well as targeted industrial policies — to prevent a downward spiral and reverse a sharp growth slowdown,” China Renaissance Securities said in a Jan. 3 report.
China is also dealing with a struggling residential property market, restrictions related to the ongoing COVID-19 pandemic and tensions with the U.S., all of which are combining to stall factory activity across China as well as putting a crimp in corporate investment and slowing household consumption.
Increased regulations in China’s financial, technology and real estate sectors have also cooled corporate expansion and fundraising activities, both of which are key revenue sources for banks in the nation.
Related: China ‘Blanket’ Crypto Ban Paves Way for CBDCs
In September, China’s central bank announced that all cryptocurrency-related transactions, including bitcoin, are illegal.
The People’s Bank of China (PBOC) said that “virtual currency derivative transactions are all illegal financial activities and are strictly prohibited.” That means overseas cryptocurrency exchanges will not be allowed to operate within China.
In May, Chinese banking regulators banned financial institutions (FIs), including banks and payments companies, from providing services related to cryptocurrencies.
Beijing is slated to roll out its digital yuan during the 2022 Winter Olympics next month. The central bank and other authorities have been piloting the CBDC in retail and domestic settings, allowing users to purchase goods and services and pay for utilities and other bills.
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