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Fitch: China Leasing Outlook Stable but Independents Face Risks
November 16, 2017 / 1:27 AM / a month ago

Fitch: China Leasing Outlook Stable but Independents Face Risks

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: 2018 Outlook: Chinese Leasing Companies here TAIPEI/SINGAPORE, November 15 (Fitch) Chinese leasing companies continue to benefit from the authorities' supportive stance towards the sector's development, which broadly offsets risks associated with rapid growth, intensified competition and increased industry and system-wide leverage, says Fitch Ratings. Our sector outlook for 2018 is therefore stable. However, independent lessors that lack parental support could run into capitalisation and funding challenges as a result of their aggressive expansion, and are more exposed to external market conditions and heightened shadow-banking scrutiny. The government has introduced a series of policies to support growth of the leasing sector in recent years, with the aim of improving funding diversity and accessibility for small businesses. These efforts are likely to continue in 2018. Leasing subsidiaries of financial institutions and manufacturers will also continue to receive capital and funding support from their parents, which should allow them to take advantage of growth opportunities without placing a strain on their capitalisation or funding profiles. Independent lessors also have strong opportunities for growth but a higher risk appetite and are likely to continue to face greater challenges in terms of capitalisation and funding. As such, our sector outlook on independent lessors is negative. Fresh capital for independent lessors is less readily available, and aggressive growth that exceeds internal capital generation will increase these lessors' leverage and weaken their credit profile, unless they have a viable capital replenishment plan. Independent lessors, particularly the smaller, less-established ones, are also the most likely to face an increase in funding costs or a shortage of funding availability as a result of the heightened scrutiny on shadow-banking activities. These lessors are more reliant on non-loan credit - such as wealth-management and trust products - than larger lessors that receive funding support from parents. Favourable government policies, while supporting sector growth, have also fuelled competition, which is pressuring yields and margins, and undermining lessors' underwriting discipline. Lessors with higher risk appetite, especially more aggressive independent lessors, may start loosening underwriting standards as they pursue greater market share, potentially creating future asset-quality problems. The Issuer Default Ratings (IDRs) of bank leasing subsidiaries are support-driven and range from 'A+' to 'BBB'. The stable rating outlook reflects our expectation that the leasing subsidiaries' roles in the groups and close operational linkage with their parent banks will not change significantly over the rating horizon. The IDRs of Fitch rated independent lessors are underpinned by their intrinsic credit profile and range from 'BBB-' to 'B'. The rating outlook for these lessors also remains stable, despite signs of increasing pressure on their funding and capitalisation, which have been considered in the current rating level. Further details are available in our "2018 Outlook: Chinese Leasing Companies" report, which is available at www.fitchratings.com or by clicking on the link above. Contact: Katie Chen Director Financial Institutions +886 2 8175 7614 Fitch Australia Pty Ltd, Taiwan Branch Suite 1306, 13F, 205, Tun Hwa North Road Taipei City, Taiwan Jonathan Lee Senior Director +886 2 8175 7601 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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