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Chinese banks may not have enough capital to lend economy out of slowdown, says Fitch

  • ‘Banks’ earnings in the past few years have only been able to sustain their [required] capital adequacy levels,’ said Fitch executive Grace Wu
  • Beijing is leaning further on the private sector to buffer the slowdown and is requiring banks to lend more to these firms, without raising borrowing costs

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Do China’s banks have the requisite money to lend the economy out of trouble? Photo: Reuters

Chinese banks do not have adequate capital to support the sort of large-scale lending that could bolster economic growth in the world’s second-largest economy, Fitch Ratings has said.

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The global credit rating agency has predicted China’s economy to slow from 6.2 per cent this year to 5.8 per cent in 2021. Grace Wu, senior director and head of Fitch’s Greater China banks business, believes that “the peak of the US tariffs has yet to come”.

The US and China agreed to a temporary trade war truce last month as the impact from the year-long dispute began to bite their economies and broader global trade.

“Looking at the overall banking system, banks’ earnings in the past few years have only been able to sustain their [required] capital adequacy levels,” Wu said at an event in Hong Kong on Tuesday.

‘Looking at the overall banking system, banks’ earnings in the past few years have only been able to sustain their [required] capital adequacy levels,’ Fitch Ratings director Grace Wu said at an event in Hong Kong on Tuesday July 9.
‘Looking at the overall banking system, banks’ earnings in the past few years have only been able to sustain their [required] capital adequacy levels,’ Fitch Ratings director Grace Wu said at an event in Hong Kong on Tuesday July 9.
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What is currently available in the banking system is not sufficient to support any large-scale lending designed to prop up economic growth, since regulators have required banks to raise their capital reserve levels, Wu said.

“And this will affect China’s economic slowdown.”

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