Improved outlook for banking sector in SARs and Mainland


Ratings agency Fitch has removed its negative sector outlook for both the Macau and Hong Kong SARS, as a ‘strong start to the year in China’ and an uptick in global trade are relieving some of the pressure on Asia-Pacific financial systems, as noted by CFO Innovation.
The sector outlook, however, for 10 out of the 17 rated banking systems in the Asia-Pacific region is still negative, which is still a drop of three from the beginning of the year – two of which were the SARs.
The results of the recent National Financial Works Conference, recently held on July 14 and 15 on the Mainland, allow for a coordinated committee to oversee the four main financial regulators, breaking ‘the current fragmented framework which makes it more difficult for regulators to monitor banks and non-bank financial institutions, and to fully address the contagion risks from increased cross-holding of complex financial products,’ notes the agency.
The result is more ‘positive for the long-term stability of China’s financial system and economy’ and goes in line with new guidelines enhancing bank supervision ‘and the facilitation of higher market interest rates by the People’s Bank of China (PBOC) to squeeze out speculative activity in the shadow banking sector’.
‘The build-up in private-sector debt and the rise in property prices over the last decade of ultra-loose global monetary policy have created financial risks that could still be tested by U.S. rate hikes,’ cites the publication, pointing out risks such as rising corporate debt in Hong Kong and China. An unpredicted slowdown in the economy of the Mainland would have an immediate effect on Asia Pacific banks, notes the publication. “Tighter, more-centralized regulatory powers – if that’s what this will really mean – under the PBOC are welcome,” stated APAC strategist Michel Every of Rabobank to Bloomberg.
‘The authorities’ belief that economic conditions remain resilient has provided them with the confidence to address financial risks,’ points out Fitch, noting the recently announced second quarter data showing a 6.9 per cent year-on-year increase in GDP for the Mainland. ‘That confidence could be tested in the second half of the year, as tighter credit conditions feed through the economy, particularly in the housing market,’ notes the rating agency.