Top Chinese bankers stress their lack of vulnerability to the Western Banking Crisis

Stress tests against US and European risk give Beijing’s largest banks encouragement.

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Following the failure of Silicon Valley Bank and Credit Suisse, China’s largest institutions claim to have avoided the financial crisis in the US and Europe unharmed.

China’s major lenders, including Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, and Bank of China, have all stated that the emergency bailout of Credit Suisse by UBS last month and disasters in the US banking sector have not directly impacted their financial statements.

At a meeting last week, when all the major banks reported solid profits, Ji Zhihong, vice-president of the nation’s second-largest bank CCB, claimed that “even from an indirect or spillover effect perspective, the impact [to China’s banking sector] is very limited.”

The findings of stress testing against what China’s banks and other financial institutions perceive to be a potentially dangerous array of new threats, including exposure to European and local US banks, are still being reported to authorities. Only minor contact, according to the personnel conducting the exams, has been discovered.

The examination draws attention to persistent market worries regarding the cash and liquidity management of Chinese banks in the context of rising global conflict and financial system instability.

Even though his bank had not been affected by the crisis, Zhang Yi, vice president of Bank of China, which has the most exposure to foreign markets, stated that his institution still intended to modify its overseas assets and accounts.

“Whatever the causes of the troublesome foreign organizations may have been, it ultimately leads to tension and depletes savings…We’ll make sure there isn’t a significant disparity in the age and value of assets and savings, he said.

The most important lesson for those in charge of planning and regulating China’s financial system is to avoid “creating the environment” that would place institutions in a situation comparable to SVB and Credit Suisse, according to Chen Long, co-founder of the Beijing-based research firm Plenum.

“A very poor notion, changing the monetary policy so drastically. The financial sector will undoubtedly be under a lot of stress if interest rates need to be raised by 300 [basis points] in a year. If they are properly run, some institutions have plans in place. However, not everyone is properly handled.

The largest bank in the world, ICBC, declared a total profit of Rmb360bn ($52bn) for 2022, an increase of 3.5% from the previous year. The earnings increase recorded by the other leading institutions was just as strong or even stronger.

The best banks’ net interest margins, a crucial indicator of bank revenue, held constant or slightly declined, indicating strength in their loan books.

The outcomes were achieved despite China’s economy growing at a modest pace, as well as a historically severe decline and high levels of company debt in the property sector, a key engine of the economy.

China’s confidence in the competence of European and American authorities has been damaged by the financial crisis. Chinese authorities had been enforcing policies that included requiring banks to create “living wills” in the event of insolvency or seizure.

At least, the structure for governing banks worldwide appears to be inadequate, according to Chen.

The paradox is that the Swiss are regarded as innovators in financial regulation. Then, Credit Suisse, the second-largest bank in the nation, collapsed,” he continued.

Despite financial results that were better than anticipated, China’s major lenders all issued warnings about ongoing dangers, many of which were related to the real estate market.

The percentage of property-related non-performing loans at CCB nearly doubled from year to year. As a result of strict debt controls on the real estate sector, which strangled the industry’s cash lines, China’s real estate sector has been devastated by a number of developer bond and loan failures.

According to Liu Jiandong, the Bank of China’s top risk manager, “the property sector will take time to recover, so the hangover on asset quality will last for a while.”

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