Fitch: China banks face operating environment headwinds during 2022; Affirms China GDP growth forecast at 4.8% (v China target of 5.0-5.5%) aggressive credit easing as unlikely, given the need for large banks to build capital buffers
- baseline projection assumes significant fiscal easing in 2022, and we see further monetary easing in terms of rate cuts and a 50bp reduction in banks’ required reserve ratio
Chinese banks as a whole reported profit growth of 13% in 2021, due in part to a low base in 2020 (when profits fell by 2.7%) and declining impairment charges amid China's robust post-pandemic recovery. The strong performance last year came despite the intensification of property-market stress during 2H21, but was in line with our expectations, as we had an 'improving' sector outlook in 2021. Our sector outlook for 2022 is 'neutral'. The sector resolved around CNY3 trillion of non-performing loans (NPLs) in 2021. This partially explained the slight decline in its reported NPL ratio, to 1.7% by end-2021 from 1.8% at end-2020. Nonetheless, reported property-development NPL ratios jumped - for our rated banks, the ratio rose to 2.7% by end-2021 from 1.8% at end-2020, based on available disclosure. In addition to the continued resolution of bad debts, banks' moderate direct exposure to property development (at around 7% of total lending) helped to cushion the impact on their overall NPL ratios. There may also have been recognition issues, especially for smaller banks.
property-sector stress so far this year has been more severe than we previously expected. Sales volumes and homebuyer confidence have yet to fully recover, and we assume that there will not be significant improvement in capital-market access for most developers in the next three to six months