What’s new: S&P Global Ratings Inc. has revised its outlook on China Guangfa Bank Co. Ltd. from stable to negative, citing deteriorating loan quality and profitability of the national joint-stock commercial bank amid the Covid-19 pandemic.
The credit ratings agency expected Guangfa Bank to grow its loans by a percentage in the low- to mid-teens over the next two years, which could further squeeze the bank’s capitalization as it lacks major fundraising plans, according to a Wednesday report released by S&P.
S&P also estimated Guangfa Bank’s risk-adjusted capital ratio, a gauge of a financial institution’s ability to continue functioning amid an economic downturn, will drop to around 5% over the next two to three years from 5.7% at the end of 2019.
What’s the background: By the end of June, China’s banking sector held 3.6 trillion yuan ($515 billion) of nonperforming loans, up 12.5%, from the beginning of the year, according to data from the China Banking and Insurance Regulatory Commission (CBIRC).
The top banking regulator warned last month of a potential “significant rebound of bad loans,” as some hidden risks have yet to be fully exposed due to easing monetary policy this year.
Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Marcus Ryder (marcusryder@caixin.com)
