June 13, 2017 / 4:44 AM / 7 months ago

Correction: Fitch: Foreign Banks' China Exposure on Rebound; To Rise in 2017

(The following statement was released by the rating agency) HONG KONG/SINGAPORE, June 13 (Fitch) The following Fitch Wire article replaces the version published on 12 June 2017 to update the total Mainland China Exposure of foreign banks. Foreign banks' exposure to China continues to rebound from its 2015 trough, driven by a pick-up in trade and improving sentiment towards the Chinese economy, among several other factors. Fitch Ratings expects a further rise in lending to the mainland in 2017, with tight onshore liquidity conditions likely to add to the incentives for Chinese companies to borrow offshore. Hong Kong banks have already reported a 10% qoq rise in Mainland China exposure (MCE) in 1Q17, compared with growth of just 6% over the whole of 2016. Total MCE of foreign banks rose by 5.4% in 2016 to USD1,669 billion, after falling by 14% in 2015, according to data compiled by Fitch. Growth in the second half of 2016 accelerated slightly, to 2.9% from 2.4% in 1H16. Hong Kong banks account for the largest share of foreign banks' MCE, at 48% at end-December, followed by Singapore at 7% and the UK at 6%. The UK's share would be 16% if it included the MCE of UK banks' Hong Kong subsidiaries. Hong Kong banks' MCE rose to 29.3% of system-wide assets at end-March, up from 27.3% at end-December. Rising interconnectedness between the Hong Kong and Chinese economies is driving growth now that the fall in FX-speculation-linked lending in 2015 has run its course. Client referrals from Chinese parent companies of bank subsidiaries based in Hong Kong remain a key source of growth in Hong Kong exposure to mainland borrowers. We also expect Hong Kong banks' mainland subsidiaries to grow as they expand their retail operations in southern China. These subsidiaries have become more active in mortgage lending in major Chinese cities, but this could slow as a result of the tightening of local regulations to cool the housing market. <iframe allowfullscreen src="//e.infogr.am/hong_kong_banks_mce_continues_to_rebound?src= embed" title="Hong Kong banks' MCE continues to rebound" width="550" height="676" scrolling="no" frameborder="0"> Steady growth in lending to Chinese corporates and other non-bank borrowers - particularly private and non-mainland entities - is likely to continue, in part to support their expansion overseas. The non-bank segment accounted for almost three-quarters of Hong Kong lenders' MCE at end-March 2017. Claims on banks tend to be more volatile than those on non-banks, as shown by their 25% growth in the first quarter. The strong rise in 1Q17 could be an indication of a pick-up in trade-related growth, given that MCE to banks often takes the form of a Chinese bank's guarantee of corporate exposure. Exposure to banks accounted for 26% of MCE at end-March, up from a low of 23% at end-December 2016, but still well short of the peak of 43% three years earlier. Fitch continues to view China-related exposure as the biggest asset-quality risk for Hong Kong's banks, given that China's economy is highly leveraged and is going through a structural slowdown. That said, MCE has performed relatively well so far, even if the latest data show that the quality of banks' MCE continued to slowly deteriorate on average last year. A few banks have suffered above-average China-related losses, and some have scaled back their riskier onshore SME lending. Further detailed information can be found in Fitch's "Mainland China Exposure Data File". The report can be accessed on www.fitchratings.com or by clicking the link above. Contact: Sabine Bauer Senior Director Financial Institutions +852 2263 9966 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Eleven Li Research Assistant Financial Institutions +86 10 8517 2136 Dan Martin Senior Analyst Fitch Wire +65 6796 7232 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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