China banks’ third-quarter earnings point to deleveraging, better profits ahead


As debt risks recede with Beijing’s heavy-handed approach and a “resilient” Chinese economy, “we see China banks likely facing a smoother credit cycle vs. global peers,” Nomura analysts wrote in a report in October when they turned positive on the sector after 12 months of staying cautious.

The banking sector in the Asian economic giant is the largest in the world by assets, according to a Financial Times analysis earlier this year. The health of China’s lenders is closely-watched as a proxy for the country’s wider economy, which has global implications.

As indebtedness grew rapidly in China over the past few years, Chinese banks’ ability to control risks was questioned and regulators intervened on fears of instability breeding turmoil. Now, that effort appears to be paying off.

“It’s indisputable that asset quality is getting better in China. When the economy is doing so well and so many corporations are making money versus losing money previously, inevitably the asset quality has to get better,” Helen Zhu, BlackRock’s head of China equities, told CNBC.

Zhu’s comments were backed by the top four banks’ latest quarterly report cards, which all showed a decline in the proportion of bad debt to total loans. On average, that proportion stood at 1.61 percent across the major lenders in January-to-September 2017 versus 1.76 percent a year ago, according to an analysis by Nomura.

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