Fitch Ratings yesterday voiced doubts about the weakening credit profiles of banks in China as Beijing ramps up efforts to tame inflation and cool its booming property sector.
Fitch said its general outlook for Asia-Pacific region banks this year was “stable,” reflecting the agency’s expectations for slower but healthier regional growth.
“Where Fitch has somewhat cautious views on the banks in China and Vietnam ... this is because their moderating profitability and relentless growth are pressuring capital, thereby weakening their credit profiles,” it said.
The cautious outlook came as state media reported on Jan. 21 that Beijing may further raise interest rates to combat rising inflation during the first half of this year.
The government has already introduced a series of moves to curb bank lending as part of efforts to rein in runaway property prices and avert a costly asset bubble.
On Friday, China launched a long-awaited property tax in two of the country’s biggest cities.
People buying higher-end second homes in Shanghai, China’s wealthiest city, and Chongqing, home to 30 million people and the country’s fastest-growing municipality, now have to pay a 0.4 percent to 1.2 percent annual tax, officials said.
The government also raised the minimum down payment for second homes to 60 percent from 50 percent.
Fitch warned there was a risk Asian policymakers could fall “behind the curve” in fighting inflation as steeply higher commodities prices, including foodstuffs and oil, exacerbate the impact of massive capital inflows into the region.
“A commodities-inflation shock which is more severe than Fitch expects, and/or policy mis-steps that see authorities ‘fall behind the curve’ of local inflation expectations, could lead to sharper monetary tightening and a downside risk for Fitch’s growth forecasts,” it said.
The main risk for the region and its banks is a “relapse” in the global economic recovery and a sharp slowdown in China, Fitch said.
This would “likely weaken the sentiment-sensitive property sector and in turn negatively affect banks, given their real estate loan exposures,” it added.
The risk appears highest in Australia, China, Hong Kong and Singapore, where house prices have seen strong increases in recent years, it said.