SHANGHAI/SINGAPORE : Chinese banks are facing increasing risks from rising non-performing loans (NPLs) and diminishing returns, making them a lightning rod for investors' worries about the world's second-largest economy.Concerns about their exposure to local government financing vehicles (LGFVs), the inve
SHANGHAI/SINGAPORE : Chinese banks are facing increasing risks from rising non-performing loans and diminishing returns, making them a lightning rod for investors' worries about the world's second-largest economy.
Goldman's three-part series refers to banks' writing down loans to the property sector as well as the pressure on bank profits as they expand or roll over loans and other lending to LGFVs. "LGFVs' debt risk may ultimately need to be borne by the state sector, including China's state commercial banks," said Raymond Yeung, chief Greater China economist at ANZ.
"If local governments’ revenues continue to worsen, then NPLs among some Chinese banks may go up. Chinese banks would have to shoulder up this cost," said Gary Ng, senior economist at Natixis Corporate & Investment Banking in Hong Kong.The Chinese economy grew at a faster-than-expected clip in the first quarter, rebounding from three years of pandemic restrictions, but the recovery has been patchy with exports disappointing and households reluctant to spend.
Goldman said it had downgraded Agricultural Bank of China to"Sell" from"Neutral", while cutting Industrial and Commercial Bank of China and Industrial Bank to"Sell" from"Buy".
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