Caixin
Aug 06, 2020 04:00 PM
FINANCE

S&P Cuts China Guangfa Bank’s Outlook From Stable to Negative

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.

Quick Takes are condensed versions of China-related stories for fast news you can use. To read the full Caixin article in Chinese, click here.

Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Marcus Ryder (marcusryder@caixin.com)

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