ANZ: Is China's Banking Sector Safe?

ANZ write “the bank failures in the U.S. and Switzerland have prompted us to review our risk assessment for China’s banking sector.”

• “Chinese banks face structural risks due to their exposure to the property sector and Local Government Financing Vehicles (LGFVs), which are different from the cyclical headwinds faced by their Western counterparts. Therefore, structural reforms are the only feasible solution for those risks. We will be watching policy signals from the first meeting of Central Financial Affairs Committee, which will likely be headed by President Xi.”
• “We estimate China banks’ risk exposures to property and LGFVs to reach CNY130tn, or 42% of all bank assets. The magnitude of the problem prompted the authorities to unveil sweeping measures to rescue the property sector in November 2022. The financial overhauls signals the authorities’ determination to de-risk the sector.”
• “Overall, Chinese banks are at a better position now than previously against financial risks. Their profitability will improve as the economy rebounds progressively. The authorities had fixed internal governance problems and injected CNY550bn of capital for 600 vulnerable local banks over the past three years. We expect the authorities to accelerate the restructuring of distressed property developers and LGFVs.”