China to become more selective in supporting distressed banks, say Moody’s and Fitch
- State support for the Chinese banks will vary as the authorities try to share some of the losses with large creditors, say analysts at Moody’s and Fitch
- Up to 10 per cent loss sharing by wholesale creditors of Bank of Baoshang, and Bank of Jinzhou skipping its coupon payment on dollar bonds are some examples
China is expected to continue to extend support to problematic banks, but authorities will be selective in their approach after pumping in billions of yuan to bail out three banks in the last four months, say analysts.
Nicholas Zhu, a credit analyst at Moody’s Investors Service, said that while the Chinese government has been quick to deal with episodes of bank stress, as regulators aim to alleviate market fear of contagion risk amid ongoing shadow banking and interbank activity, they are also determined to push forward their policy goal of maintaining financial stability.
“The authorities will become increasingly selective in providing support, especially where banks do not pose significant systemic risk”, Zhu said in a report issued on Monday, adding that government support will eventually be more “tiered”.
In general, as big banks bring higher volatility to the system and markets when in trouble and pose a greater risk of contagion, analysts typically incorporate a very high level of support to state-owned banks, a high level of support to large regional banks, and a moderate level of support to small regional banks.
