Moody's sees stable outlook for Chinese financial institutions in 2018

The outlook for financial institutions in China through 2018 will be stable amid tighter government regulations on the industry and the nation’s overall stable economic growth, Moody's Investors Service said today.

Moody's rated asset risks for banks to stabilize next year as their corporate profits are expected to rise. But the risk of delinquencies remains elevated among some highly-leveraged and loss-making borrowers as their borrowing costs are likely to increase amid tighter shadow banking regulations.

Liquidity in the banking system will remain tight for smaller banks due to regulatory efforts to constrain the growth of corporate and interbank leverage and shadow banking. But government support will remain strong for major banks, because financial and social stability remains “key policy priorities”, according to Moody’s.

Banks will benefit from an operating environment of steadying economic growth and recovering commodity prices that will boost their corporate profitability and asset quality, Sherry Zhang, a analyst from the rating agency, said.

The rating agency noted that while profitability will come under pressure for brokerages, it is confident that the major firms will see their profits stay above that of international peers.

Leasing companies will show “stable asset quality” and their liquidity and refinancing risks will be slightly mitigated by diversifying funding sources, Moody's said, warning however, that their profitability will be pressured by higher funding costs.

China's "big four" asset managers will still dominate the market, Moody's said. Economic restructuring will continue to support these companies' core business growth, while higher asset prices will boost profitability of their core distressed asset management business. They will also see their liquidity profiles improve because of the increasing use of long-term funding. 

But Moody's is not so optimistic over the outlook on the life insurance industry which it rated negative because the regulatory clampdown on short-term savings products exposed some insurers to liquidity stress and slowed new business growth.

The property and casualty insurance sector has stable new car sales and fast-paced growth in the non-motor insurance segment to support growth in premiums, Moody's said.