Loan delays due to virus to erode bank asset quality, Moody's says

Moody’s Investors Service said the Wuhan coronavirus outbreak will weigh on Chinese bank asset quality this year, a credit negative.

Caution among people against activities that involve crowds and social gatherings has led to a drop in domestic travel and consumption, which will affect the service industry, Moody's said.

"The greatest initial impact on bank asset quality will be for loans to industries most affected by the disruption and consumer caution. The decline in domestic travel and consumption will hit tourism, lodging, restaurant and physical retail sectors the most. In particular, banks' lending to small and micro enterprises, and to individuals employed in these sectors, is likely to record the largest increase in loan delinquencies,'' Moody's said.

"Banks with operations concentrated in Hubei province and its capital Wuhan, the epicenter and the region worst hit by the virus, will see the greatest increase in problem loans. PBOC data indicate that loans and deposits for financial institutions in Hubei accounted for 3.3 percent and 3.0 percent of the country's total as of end-2019.''

Moody's added that asset performance on bank loans to manufacturers will depend on whether quarantine measures can effectively stem the spread of the virus and allow a normal resumption of factory production and overall consumption.