Moody's Revises Up China Banking System Outlook To Stable

     BEIJING (MNI) - Moody's Investor Service has revised its outlook on China's

banking system to stable from negative, pointing to improved asset quality in

the sector and efforts by the Chinese government to curb shadow banking. 

     Moody's said Thursday that the revision "reflects our expectations that

nonperforming loan formation rates will be relatively stable at current levels."

Its previous negative outlook stemmed from what it said was a deterioration in

banks' asset quality in 2015 and 2016. 

     The government's "more coordinated policy measures" on shadow banking "will

help mitigate asset risks for banks, and address some key imbalances in the

financial system," the ratings agency added.

     Moody's assessed five components of the banking sector in making the

upgrade, with three of the five -- operating environment; asset quality and

capital; and systemic support -- getting "stable" grades, while two of the

components -- funding and liquidity; and profitability and efficiency -- were

rated as "deteriorating."

     The operating environment will be helped by policies to encourage

investment in specific sectors, such as infrastructure and the construction of

self-occupied residential properties, as would government efforts to contain

financial risks, including its financial deleveraging drive, it said.

     But banks' profit growth will be constrained by a number of factors,

Moody's said, including "continued pressure on net interest margins and slower

growth in fee income," because of tighter liquidity conditions and stricter

regulations on shadow banking activities, particularly in wealth management.

     Over the past year, Moody's has changed its outlook for most of the 24

individual banks it rates in China to stable from negative, with banks having

stable outlooks now accounting for a combined 89% of total assets held by the

Moody's-rated banks.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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