Sharp China slowdown to hit Asian bank asset quality, Fitch says

Business | 23 Aug 2019 4:54 pm

Banks in Asia's trade-dependent developed markets would face the most pressure on their credit profiles in the event of a sharp slowdown in the Chinese economy, Fitch Ratings says in a new report.

Banks in these markets are among those with the strongest underwriting standards and risk controls in the region, but the downturn in economic conditions would test asset quality and add to their existing profitability challenges.

The institution's hypothetical scenario models the economic impact of a sharp Chinese economic slowdown sparked by the United States imposing additional tariffs of 25 percent on around US$300 billion (HK$2.34 trillion) of Chinese imports.

The tariff impact is sharply amplified by a separate investment shock involving a substantial retrenchment in investment activity against the backdrop of corporates' need to ease balance-sheet pressure and preserve liquidity amid weaker demand. Chinese GDP growth would trough at 3.4 percent in 2020, compared with a base case of 5.9 percent, before recovering to 4.2 percent in 2021, forecasts by Fitch Ratings. H

ong Kong banks have the most direct exposure to a Chinese slowdown outside of China, says Fitch, with claims on the mainland accounting for 30 percent of Hong Kong's system assets at end-2018.

Fitch Rating cut its assessment of the operating environment for Hong Kong's banks to 'a'/stable from 'a+'/negative in 2018 due to the growing links between the territory and mainland China. Singaporea banks also have significant direct exposure.

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