fitch rating - chinese banks
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Chinese BanksCash cushions thinning as liquidity erodes and forbearance burdens riseTRANSCRIPT
Banks
www.fitchratings.com 2 December 2011
China
Chinese Banks Cash Cushions Thinning as Liquidity Erodes and Forbearance Burdens Rise
Special Report
Financial Sector Challenges Growing: Three years after the onset of the global crisis, China
faces a growing list of its own financial sector challenges threatening to undermine economic
growth and financial stability. At the heart of these issues is the aggressive counter-cyclical
credit policy enacted by authorities in response to the 2008 crisis, which has fuelled a massive
build-up of leverage in the formal and informal banking sectors, given rise to large excesses in
real estate and infrastructure, eroded financial sector liquidity, and boosted inflation.
Recent Stress not Unique: Recent stress in informal lending and among property developers,
SMEs, and local governments has not reached systemic levels. Nonetheless, Fitch Ratings
believes these are not isolated cases of distress, but rather emblematic of excesses from the
credit boom and a policy orientation that overly relies on credit controls and low fixed-interest
rates; prioritises the state sector above private companies and savers; and favours forbearance
and support over restructuring. In this light, recent problems could be only the beginning.
Liquidity Strain Before NPLs: Over the near term, Fitch expects the authorities to continue a
selective policy of forbearance and liquidity support for borrowers, including loan rollovers and
restructurings, new loans, and bond issuance. As a result, asset quality issues may not fully
appear in NPL ratios until well into a deterioration, if at all. Instead, delinquencies will manifest
themselves first as liquidity stress, as cash inflows from distressed borrowers slow and more
resources are directed to support weak entities.
Near-Term Dislocations Unlikely: Banks‟ cash positions are already under strain, and a rising
forbearance burden will only add further claims on these resources. For now, the CNY21trn in
commercial bank credit capacity plus CNY16trn in deposit reserves is sufficient to prevent any
major short-term dislocations. But if current rates of erosion continue, it is conceivable that
cash constraints in 2012 could become more binding. Some small banks have a dwindling
capacity to extend new credit, and may require substantial relief in reserve requirements.
Conditions Today Are Different: Although prolonged forbearance has been successful on
numerous occasions this time Chinese banks are entering the credit cycle with significantly
weaker liquidity and a much larger stock of financing to carry. Unlike the last run-up of bad
loans in the 1990s, there is no force like WTO accession on the horizon to propel the economy
out of its difficulties. It is because of this cash constraint that current asset quality stress has
the potential to become more destabilising than in previous episodes of loan deterioration.
Thinning Cash Causing Stress: Weakening cash cushions explain with what appear to be
clean balance sheets and solid earnings, Chinese banks encountered system-wide liquidity
crunches in January and June 2011, why banks are paying 300bp above base rates in auctions
of Ministry of Finance (MOF) deposits, and why market-driven interest rates continue to climb.
Carry Costs Crimp Growth: As forbearance burdens rise and funding and liquidity become
more constrained, the less resources Chinese banks will have to continue financing new
economic activity while meeting their own obligations and extending forbearance. In this way,
the high carry costs of the credit boom could begin to crowd out GDP growth – as banks get
progressively bogged down by supporting the recent run-up in leverage.
Viability Ratings Under Pressure: The rapid erosion of Chinese banks‟ historical funding and
liquidity strengths is a concern, and could lead to negative action on some Viability Ratings,with
the ratings of smaller banks with thinner liquidity being the most vulnerable.
In this Report Chinese Banks ....................................... 1
Core Drivers of Funding and Liquidity Erosion ................................................... 2
Numerous Indicators Signal the Erosion of Funding and Liquidity ........... 5
Funding and Liquidity Erosion Means Thinner Cash Cushions ......................... 7
Looking Ahead ..................................... 11
Appendix – Update on Wealth Management Offerings ............ 13
Analysts
Charlene Chu +8610 8517 2112 [email protected] Chunling Wen +8610 8517 2105 [email protected] Hiddy He +8610 8517 2135 [email protected]
Banks
Chinese Banks
December 2011 2
Core Drivers of Funding and Liquidity Erosion
At the core of tightened funding and liquidity conditions are fundamental changes in monetary
policy and financial institution regulation since the global crisis, some of which have been
intentionally aimed at tightening liquidity and others unintentional. These shifts include:
a switch in emphasis from mopping up foreign-currency inflows from open market
operations to deposit reserve requirements, which are significantly more constraining for
bank liquidity;
de facto deposit rate liberalisation, by allowing banks to compete for deposits using wealth
management offerings at yields of their own choosing, which has sparked unprecedented
competition and made deposits more mobile than ever before;
a relatively hands-off approach towards the emergence and growth of the shadow banking
system, which has led to increased disintermediation of deposits into other channels;
an accelerated push to internationalise the renminbi and open the capital account, which is
leading to greater China-related financial activity outside the domestic banking system.
Greater Emphasis on Deposit Reserve Requirements
A common complaint from banks and borrowers in 2011 is that overly tight monetary policy has
tied up too much liquidity, leading to a credit crunch in some parts of the economy. In many
respects, this is true. The 600bp rise in deposit reserve requirements (RRR) since 2009 to 21%
for major banks has indeed locked up CNY4.4trn in cash that would be free if the RRR
remained 15.5%. Yet more than 60% of this drain has been offset by a contraction in central
bank sterilisation bills, resulting in a net withdrawal of just CNY1.7trn by end-September 2011.
In fact, an examination of the combined amount of Chinese banks‟ required reserves and
holdings of central bank bills shows that the average 15.9% share of banking sector assets tied
up in liquidity management operations in 2011 is lower than the 16.2% average from Q108 to
Q311, and is well below the peak of 17.7% in H109 (Figure 1).
Nevertheless, although fewer funds overall are currently tied up with the central bank, a much
larger share – 85% compared with 50%-60% pre-2010 – is coming from required reserves
rather than purchases of central bank bills. This is critical because bill holdings can be sold if a
bank is facing liquidity strains and in need of cash. In contrast, deposit reserves are 100%
illiquid and cannot be drawn down, unless a bank can demonstrate a decline in its deposit base.
Figure 1
0
3
6
9
12
15
18
21
2004 2004 2005 2006 2007 2007 2008 2009 2010 2010 2011
Required reserves Excess reserves Bank holdings of PBOC billsª(%)
Shift in Sterilization Orientation Weighing on Bank Liquidity
a Excludes bank holdings of restructuring-related PBOC bills
Source: PBOC, CEIC, Fitch
Surging Wealth Management Offerings
Bank wealth management offerings – quasi-substitutes for time deposits – have been soaring
in 2011 owing to a convergence of interests between banks eager to manage down deposit
balances to avoid high reserve requirements and depositors seeking higher returns amid
negative real savings rates (Figure 2; note that RRR charges are calculated on a rolling 10-day
Related Criteria
Global Financial Institutions Rating Criteria (August 2011)
Banks
Chinese Banks
December 2011 3
basis). Last year Fitch wrote extensively about a subset of activity focused on the informal
securitisation of loans into investment products (see Chinese Banks: Informal Securitisation
Increasingly Distorting Credit Data, July 2010). This is only one of many types of offerings,
which are outlined in Figure 3.
Fitch has long emphasised that the greatest risk associated with Chinese banks‟ wealth
management activity is the strain it places on funding and liquidity. This risk was easily
controllable when the amount of outstanding products remained small; but with wealth
management products (WMPs) issued by domestic banks now approaching 10% of total
deposits, it is becoming increasingly difficult for Chinese banks to manage (see Appendix for
more information on recent developments in wealth management activity).
For banks, the benefits associated with WMP issuance stem from the ability to shift the assets
and liabilities underlying WMPs on- and off-balance-sheet, which they typically do through
strategically setting product start- and end-dates. This enables banks to lower deposit balances
between periods to avoid high reserve requirements, while giving them the flexibility to bring
the deposits back on-balance-sheet at period-end to pad loan/deposit ratios.
Figure 3
Types of Investment Products
a Bank on-sells the product to investors as a bank wealth management product, for which the bank becomes liable
Source: Fitch
(WMPs) Issued by, and Liabilities of, Banks
Other Asset-Backed
Credit-Related (CWMPs)
Credit-OnlyDiscounted Bill Credit-Mixed
Investor is a Bank
aOther Single
Investor
Index- and Equity-Linked
Asset-Backed, ie, Informal
Securitisation
Trust Products (TPs) Issued by, and Liabilities of,
Trust Companies
SingleInvestor
Collection of Investors (CTPs)
Discussed in 2010 Fitch reports
Increased Depositor Mobility
The most salient consequence of the proliferation in wealth management offerings is the
increased mobility of deposits. Whereas in the past a Chinese depositor earned the same
interest no matter which bank he placed his money with, today he can shift his deposit to
whatever entity offers the best WMP returns. Consequently, China‟s previously sticky deposits
are losing their adhesiveness. For the first time, Chinese banks now have to contend with large
deposit payouts as WMP investors pull their money and invest it elsewhere. This challenge is
exacerbated by the fact that one-quarter of all WMPs issued in 2011 carried maturities of less
than one month, meaning that WMP investors are continuously reassessing the landscape and
deciding where to place their money next (Figure 4).
Meeting Payouts a Challenge
If WMPs were structured so that investor payouts were evenly matched with the assets
underlying the products, meeting these obligations would be relatively straightforward. However,
most asset-backed WMPs, which have made up 99% of all products issued by domestic banks
thus far in 2011, are not linked to any specific asset, but rather to a pool, whose cash inflows
Figure 2
0
2,000
4,000
6,000
8,000
2007 2008 2009 2010 Q311
Index-linked
AB otherª
AB discounted bill-related
Asset-backed (AB) loan-related
No. of Domestic Banks'
WMPs Outstanding
a A large portion of these WMPs were
previously grouped with bill-related WMPs
Source: Wind Information
Figure 4
0
25
50
75
100
2007 2008 2009 2010 9M11
<90 days 91-180 days
181-365 days 1-2 years
>2 years
Maturities of Asset-Backed
WMP Issuance
(%)
Source: Wind Information
Banks
Chinese Banks
December 2011 4
often do not match the timing of WMP payouts. When a mismatch exists and banks are unable
to liquidate assets from the pool to pay back investors, they are left with three options:
draw on their on-balance-sheet assets, resulting in an erosion of on-balance-sheet liquidity;
use money raised from new WMP issuance to pay off old issuance, which is the most popular option, but which is highly dependent on confidence, market conditions, and interest rates;
borrow the funds in the interbank market, which covers the immediate product payout but creates a new future liability.
While banks generally prefer the first two options, as liquidity has tightened there has been a
growing reliance on interbank borrowing to repay product investors. Because a large share of
WMPs are structured to mature at month-end – thereby allowing the money to be brought back
on-balance-sheet – there has been an intensifying month-end scramble for cash to cover
product payouts and the additional RRR allocation.
This month-end crunch is highlighted in Figure 5, which shows the widened gap between
seven-day SHIBOR rates at mid-month and month-end, which exceeded 170bp from August to
October 2011. This gap narrowed significantly in November after the authorities began injecting
liquidity into the interbank market. However, it is unclear how long this will last given the large
stock of WMPs, approximately 40% of which have month-end maturities.
Increased Disintermediation from Expanding Shadow Financing
Like WMPs, China‟s rapidly growing shadow banking system has also been increasingly
enticing depositors away from banks with offers of returns significantly above that of current
negative real savings rates (-200bp for one-year deposits in October 2011). Whereas funds
raised from the sale of WMPs at least stay within the banking system, deposits migrating to
shadow banking are sometimes lost entirely. Much of this money does eventually return to the
banking system, but often arrives in the form of loan repayments rather than new deposits. This
results in an increase in cash holdings and a decline in loans, but no increase in funding.
The authorities‟ hands-off approach toward the development of shadow banking has fostered
very rapid growth of this sector. Before the 2008-2009 global crisis, bank loans and
transactional off-balance-sheet items accounted for more than three-quarters of all domestic
corporate financing, but in 2011 this figure will fall to roughly one-half as new financing
channels continue to expand.
While the October investigations into informal lending may dampen activity on the margins, the
reality is that China‟s economy today requires significantly more financing to achieve the same
level of growth as in the past (Figures 6 and 7). Bank balance sheets are too stretched to
provide the same share of financing as before. Hence, shadow channels must remain open in
order to support growth, and disintermediation is likely to remain an issue for some time.
Figure 6
0
6,000
12,000
18,000
2005
0.76
2006
0.71
2007
0.77
2008
0.70
2009
0.18
2010
0.34
2011e
0.44
Change in nominal GDP Net new credit-related financing (TSF)
Net new other financing (TSF) Fitch-adjusted TSF net new add-ons (Figure 7)
Trends in Total Societal Financing (TSF) and GDP
(CNYbn)
Source: PBOC, China Trustee Association, HKMA, Wind Information, CEIC, Fitch
Incremental
change in GDP/
net new financing
Figure 5
0
2
4
6
8
Jan 10 Jul 10 Jan 11 Jul 11
Mid-month rate
Month-end rate
Trends in 7-Day SHIBOR
(%)
Source: CEIC
Figure 7
0
1
2
3
4
5
2006
2007
2008
2009
2010
H1
11
2011e
Gross credit from HK banks
Additional securitised loans
Credit from non-bank FIs
Trust product credit
Letters of credit
Fitch-Adjusted TSF
Add-ons
(CNYtrn)
Source: CEIC, Fitch, HKMA
The 2011e forecast for the Fitch-
adjusted TSF has been revised to
CNY17-17.5trn from CNY18trn in
July 2011.
Most of this change is due to a
slowdown in components of the
official TSF, while growth of Fitch
add-ons remains robust (Figure 7).
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Chinese Banks
December 2011 5
Accelerated Shift of Activity Outside Domestic Banks to Offshore Channels
The push to accelerate the internationalisation of the renminbi and open the capital account
has also contributed to erosion of funding and liquidity. The creation of the Dim Sum market for
offshore renminbi issuance, the opening of renminbi-denominated trade settlement, Hong Kong
banks‟ aggressive expansion of credit to Chinese corporates and banks, and the robust growth
of mainland citizens‟ spending and investment abroad have led to an increasing amount of
financing and settlements taking place outside the domestic banking system.
Figure 8
Hong Kong Banks’ Mainland China Exposures
(CNYbn) 2007 2008 2009 2010 H111
Non-bank mainland China exposurea 753 765 887 1,413 1,698
Claims on mainland banks 298 297 334 921 1,368 Sum: Gross mainland China exposure
b 1,051 1,062 1,221 2,334 3,066
Hong Kong GDP 1,573 1,495 1,431 1,519 1,539c
Gross mainland China exposure/GDPc (%) 67 71 85 154 199
a Includes exposures booked in mainland subsidiaries of Hong Kong-incorporated institutions
b Approximately CNY300-400bn of this amount in H111 represents CNY re-deposited at the PBOC
c Average of end-2010 and Fitch‟s sovereign team‟s 2011 forecast of HKD1,944bn
Source: HKMA quarterly bulletin, HKMA external liabilities and claims statistics, CEIC
By mid-November 2011, the outstanding amount of Dim Sum issuance stood at roughly
CNY215bn. Meanwhile, Hong Kong banks‟ mainland exposure had risen to CNY3.1trn as of
end-June 2011 (Figure 8). Because of restrictions on capital inflows, a large portion of the
money raised by Chinese companies offshore is not brought onshore, yet repayment of the
obligations sometimes comes from onshore resources. In this way, there is an eventual drain of
corporate deposits from the mainland banking system to offshore creditors, which may be one
factor contributing to the recent increase in capital outflows from China.
Numerous Indicators Signal the Erosion of Funding and Liquidity
Since mid-2010, market-driven interest rates and numerous other indicators have been
signalling a steady tightening of banking sector funding and liquidity (Figures 9 and 10). These
data point to a fundamental, structural erosion underway that qualitatively differs from previous
momentary episodes of tightness. Small joint-stock and regional banks have been the most
under pressure due to their larger WMP portfolios and more limited, concentrated sources of
funding, yet even China‟s large state banks have begun to demonstrate periodic strains.
Figure 9 Figure 10
0
2
4
6
8
Dec 06 Feb 08 May 09 Aug 10 Nov 11
3-mo. base deposit rate
3-mo. MOF deposit auction result
6-mo. base deposit rate
6-mo. MOF deposit auction result
Deposit Rates Diverging
(%)
Source: CEIC
0
1
2
3
4
5
6
O/N 1-wk 2-wk 1-mo. 3-mo. 6-mo. 9-mo. 1-yr
H110 H210
H111 H211 to date
Shift in SHIBOR Yield Curve Far
Exceeds Change in Base Ratesa
(%)
a Period average
Source: CEIC
Thus far, liquidity pressure at state banks has been transitory. Nonetheless, it raises doubts
about the conventional wisdom that these entities can provide a reliable first line of defence
against an extended system-wide cash crunch. In January 2011 the People‟s Bank of China
(PBOC) was forced to inject CNY1.3trn in cash into the banking system – nearly twice the
amount of any previous month on record – in response to systemic stress related to RRR hikes,
Banks
Chinese Banks
December 2011 6
WMP volatility and the Chinese New Year. Similar injections could become more frequent if
state banks‟ funding and liquidity continue to weaken.
Deposit Composition Shifting
Among the most striking signs of the shifting funding environment has been the dramatic
change in the composition of deposit growth. From end-2009 to end-Q311, enterprise deposits
rose just CNY2.5trn, while deposits of government agencies and organisations – which exclude
fiscal deposits of the Ministry of Finance (MOF) at the PBOC – rose by CNY7.8trn (Figure 11).
The key drivers behind the recent growth of government deposits have been the rapid growth
of local government land sales, which results in a net transfer of funds from corporates to local
governments; the reclassification of some enterprise deposits as government-related; and the
placement of some fiscal funds of the central government with commercial banks.
The decline in enterprise deposits is often attributed to the migration of corporate savings into
wealth management offerings. Although certainly a contributor, the fact that a large portion of
WMPs are brought on-balance-sheet at quarter-end to boost loan/deposit ratios (see Appendix)
suggests that quarterly enterprise deposit data may be less distorted than perceived.
Meanwhile, the fact that household deposits (which account for more than half of WMP
investment) do not show a similar trend, also indicates that other factors are at work, such as:
the weakened operating environment for corporates, which face rising cash outflows from
higher wages, input costs, and borrowing costs, matched by only muted growth of revenue;
increased migration of enterprise deposits into shadow financing channels, and of
enterprise fund-raising to offshore channels;
less repatriation of Chinese companies‟ overseas profits after a relaxation of rules that had
previously required all overseas profits to be brought back to the mainland.
Growing Disparity Between Interim and Period-End Data
Funding and liquidity challenges are also apparent in the increased volatility of deposit figures
in both macro and institutional data. In 2011 system-wide deposits have demonstrated
unprecedentedly large swings, particularly in the months before and after quarter-end (Figure
12), eg March/April (+CNY2.7trn/+CNY334bn), June/July (+CNY1.9trn/−CNY669bn),
September/October (+CNY730bn/−CNY201bn). At an institutional level, this volatility is evident
in the growing divergence between Chinese banks‟ expected and average daily deposits.
Figures 13 and 14 highlight the difference in H111 between the expected amount of daily
average deposits implied by period-end balances and the actual daily average. For example, if
a bank held CNY100 in deposits at end-2010 and CNY150 at end-H111, the expected daily
average for H111 would be CNY125. However, the bank‟s true average may have been only
CNY105, indicating a weaker day-to-day funding position than period-end data would suggest.
Figure 13
Figure 11
-2,000
2,000
6,000
10,000
14,000
2007 2008 2009 2010 9M11
Household Enterprise
Government Fiscal
Other
Net New Deposits
(CNYbn)
Source: PBOC
Figure 12
-1
0
1
2
3
Jan 0
8
Jun 0
8
No
v 0
8
Apr
09
Sep 0
9
Feb 1
0
Jul 10
De
c 1
0
May 1
1
Oct 11
New Deposits Per Month(CNYtrn)
Source: PBOC
Banks
Chinese Banks
December 2011 7
In H111, the disparity between expected and actual daily average deposits widened almost
across the board. China‟s five state banks – whose actual average was spot on in H110 – were
carrying CNY730bn less deposits on a day-to-day basis in H111 than the level implied in their
financials (excluding Bank of China (BOC, „A‟/Stable) this figure is CNY979bn). As a share of
deposits, the figures are even more stark for Tier 2 banks, whose combined daily average in
H111 fell CNY167bn below their January 1 opening balance, or CNY430bn below the expected
average. These figures highlight the growing disparity between the funding picture portrayed in
Chinese banks‟ financial statements and the day-to-day reality between periods
Figure 14
Trends in H111 Average Depositsa
Bank Viability Rating
Actual minus expected average
(CNYbn)
Gap as % of actual average
(%)
Industrial Bank (IND) b+ -126 -12.0 China CITIC Bank (CITIC) bb− -143 -8.9 Bank of Communications (BCOM) bb− -137 -4.8 Industrial & Commercial Bank of China (ICBC) bb -448 -4.0 China Merchants Bank (MER) bb− -75 -3.9 Shanghai Pudong Development Bank (SPDB) bb− -57 -3.9 China Guangfa Bank (CGB, formerly GDB)
b b+ -22 -3.9
China Minsheng Banking Corporation (MIN) bb− -37 -2.6 Agricultural Bank of China (ABC) b+ -205 -2.3 Shenzhen Development Bank (SZDB) b+ -13 -2.2 Bank of Shanghai (BOS) bb− -7 -2.0 China Construction Bank (CCB) bb -189 -2.1 China Everbright Bank (CEB) b+ -13 -1.2 Bank of Beijing (BOB)
b bb− +3 +0.6
Hua Xia Bank (HXB) b +27 +3.6 Bank of China (BOC)
c bb +249 +3.7
a Domestic operations only where data is available. See Figure 2 for a full list of ratings
b End-2010
c BOC keeps a large share of its WMPs on-balance-sheet between periods, resulting in much lower volatility
Source: Bank financial statements
It is difficult to identify how much of this disparity is related to funding that Chinese banks still
retain but hold off-balance-sheet in wealth management offerings, as opposed to how much is
temporary funding secured for short periods of time at quarter-end. However, even if the money
is retained in off-balance-sheet WMPs, the short-term, highly mobile nature of such products
means that this money is not a stable source of funding that can be relied upon.
Funding and Liquidity Erosion Means Thinner Cash Cushions
While there is a general consensus that financial sector risks in China have risen since the
global crisis, opinions diverge widely over the likelihood of these risks reaching systemic
proportions that threaten financial stability. In an environment where financial support for
distressed borrowers is the norm, today‟s bad loan problems can easily be pushed into the
future through loan rollovers and restructurings, new loans and bond issuance. The result is
invariably low NPL ratios, regardless of broader economic conditions. In theory, such practices
can continue indefinitely as long as bank shareholders are willing and able to provide this
forbearance, and as long as other parts of the economy are strong enough to offset the drag on
growth.
However, the concern in China today is that the banking sector‟s forbearance burden is rising
at a time when funding and liquidity are dwindling and financing needs remain high. For the first
time, a large number of Chinese banks are beginning to face cash pressures, and fewer
resources are available today than in the past to carry the economy through an extended
period of forbearance. It is because of this cash constraint that the forthcoming wave of asset
quality issues has the potential to become uglier and more destabilising than in previous
episodes of loan portfolio deterioration.
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Chinese Banks
December 2011 8
Figure 15
Chinese Banks’ Cash Flow Cushions Have Thinned Dramatically (Unconsolidated)
Big 5 State-Owned Banks Tier 2 Banks with VRs ‘bb-’ Tier 2 Banks with VRs ‘b+/b’
(CNYbn)
Jan-Dec 2011e
Jan-Dec 2010
Jan-Dec 2009
Jan-Dec 2011e
Jan-Dec 2010
Jan-Dec 2009
Jan-Dec 2011e
Jan-Dec 2010
Jan-Dec 2009
1. Expected Cash Outflows, as identified at prior year-end
9,367 8,423 6,138 3,361 2,467 1,850 2,637 1,906 1,533
a. Non-deposit liabilities 4,212 4,247 3,146 1,343 988 786 1,336 996 791 b. Off-balance-sheet items
a 5,155 4,176 2,992 2,018 1,479 1,064 1,301 910 742
2. Cash Inflows/Sources of Cashb 14,531 10,978 10,907 3,191 2,253 2,111 2,112 1,548 1,350
a. Cash and excess reserves 1,427 1,014 1,256 303 183 355 118 141 183 b. Tradable securities
c 9,622 7,490 7,462 1,054 873 938 427 322 396
c. Interbank assets 3,482 2,474 2,189 1,834 1,196 818 1,566 1,085 771
3. Expected Net Cash Position 5,164 2,555 4,770 -170 -214 261 -526 -358 -183
4. Additional Operating Cash Outflows, current period
8,617 5,919 6,393 1,782 1,324 1,419 993 695 693
a. Loans 4,334 3,680 5,215 914 920 1,222 547 515 605
b. Estimated WMP payoutsd 4,283 2,239 1,178 868 404 197 446 180 88
5. Additional Operating Cash Inflows, current period
5,839 5,535 6,918 1,147 1,562 1,632 656 891 826
a. Deposits 5,107 4,990 6,501 1,010 1,466 1,565 589 841 793 b. Net income
e 732 545 417 137 96 67 67 50 33
6. Final Operating Cash Position 2,386 2,171 5,295 -805 24 475 -863 -162 -50
7. Loans less than 1 year 11,041 8,919 7,529 2,935 2,582 2,169 1,570 1,315 1,254
8. Share of loans less than 1 year that must be repaid (%)
0 0 0 27 0 0 55 12 4
a Includes irrevocable loan commitments less than one year, acceptances, letters of credit, and unused credit card lines
b Average balance over the period
c Excludes pledged and illiquid securities such as loans and receivables, securities received during NPL carveouts, or investments in other banks‟ WMPs
d Assumes only 60% of maturing products must be repaid in cash
e Income figures are not available on an unconsolidated basis, so consolidated figures are used instead. 2011e net income is 2x H111 net income
Source: Bank financial statements, Fitch
Cash Positions Have Weakened Across the Board
While much has been written about China‟s surplus savings from an economic perspective,
from a banking sector point of view the continuous flood of new, captive deposits has been the
single most important factor upholding financial system stability through more than a decade of
reform and commercialisation. Prior to the crisis of 2008-2009, the scale of new deposits
entering the system each year was so immense – and outflows so miniscule – that whether a
loan was repaid or not often had little impact on banks‟ ability to meet their own obligations.
Whether NPLs were 1% or 20%, deposits and other inflows were usually more than enough to
cover all liabilities.
This phenomena is most evident when examining Chinese banks‟ cash flow positions, which
are highlighted in Figure 15. Line 6 of this table shows how as recently as end-2010, two of the
three categories of Chinese commercial banks under Fitch‟s coverage had final operating cash
surpluses before receiving even a single yuan of loan repayment.
However, since 2009, operating cash positions have thinned across the board as funding and
liquidity have tightened, previously stable deposits have become more mobile, and financing
needs remain high, forcing large amounts of credit into off-balance-sheet channels. By end-
2011, Tier 2 Chinese banks are expected to post a combined operating cash deficit in the
region of CNY1.6trn, compared with a surplus of CNY425bn in 2009. State-owned banks are
expected to continue to register a final operating cash surplus, albeit down by more than half
from 2009.
This dramatic shift in cash flow cushions means that Chinese banks‟ ability to meet their own
obligations increasingly depends on some portion of existing loans being repaid. Figure 15,
Line 8 highlights the amount of loans maturing within one year that must be repaid in full in
order for each group to cover short-term cash outflows through end-2011. For Tier 2 banks with
VRs in the „b‟ category, 55% of loans coming due by end-2011 must be repaid in full, while
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Chinese Banks
December 2011 9
banks with „bb‟ category VRs must receive 27% repayments. These are striking changes from
just one year ago. It should be noted that these results are conservative as they assume that:
all reverse repos will be repaid in full on-time, which is optimistic given that some of these
transactions are between banks and their own WMPs, and receipt of cash on this portion of
repos is questionable (see Appendix);
all non-reverse repo interbank assets less than one year in maturity will be fully repaid in
cash on-time, which may not be the case given both declining liquidity among counterparty
banks, who may push to roll over obligations, and growing concerns about the health of the
nonbank financial sector;
banks only have to pay out 60% of maturing WMPs, and experience no deposit outflows
aside from these WMP payouts;
all corporate fixed-income securities can be sold for cash at no loss when required, which
is unlikely to be the case in a stress scenario.
Figure 16 shows the difference in key line items if only 80% of interbank and reverse repo
assets are repaid in cash, only 80% of the value of corporate fixed-income securities can be
retrieved, and banks must repay 80% of maturing WMPs. In this scenario, Tier 2 banks with
VRs of „b+‟/‟b‟ must receive repayment of 86% of loans less than one year in maturity in order
to meet their cash outflow obligations (versus 55% previously), while for banks with „bb-‟ VRs
this figure rises to 52% from 27%.
Capacity to Extend Forbearance and Credit Is Dwindling for Small Banks
Extrapolating these results to an assessment of forbearance and lending capacity highlights
how thinning cash flows could start to crowd out the ability of small banks to extend new loans
and provide the support the authorities are counting on to smooth over asset quality issues.
With ‟b‟ VR banks now requiring repayment of as much as 55%-86% of loans less than one
year just to meet their own obligations, these entities have dwindling room to extend new credit,
let alone provide assistance to distressed borrowers. As Figure 17 highlights, the credit
capacity of these banks as they enter 2012 has plummeted to CNY200bn-700bn, compared
with CNY900bn-1.4trn at the start of 2011.
These figures are derived by taking the sum of lines 6 and 7 in Figures 15 and 16, which
represent the amount of money left after all outgoing obligations are met. Whether these
resources are extended as new credit or in the form of forbearance, i.e. the bank agrees to roll
over the loan and the money is deducted from expected repayments, the effect on banks‟ cash
positions is the same.
Figure 16
Operating Cash Flow Cushions Adjusted for 80% Repaymenta (CNYbn)
Big 5 State-Owned Banks Tier 2 Banks with VRs of ‘bb-‘ Tier 2 Banks with VRs of ‘b+/b’
Jan-Dec 2011e
Jan-Dec 2010
Jan-Dec 2009
Jan-Dec 2011e
Jan-Dec 2010
Jan-Dec 2009
Jan-Dec 2011e
Jan-Dec 2010
Jan-Dec 2009
1. Expected Cash Outflows, as identified at prior year-end
9,367 8,424 6,137 3,361 2,467 1,849 2,637 1,907 1,533
2. Cash Inflows/Sources of Cash 13,610 10,306 10,353 2,765 1,971 1,920 1,772 1,312 1,184 3. Expected Net Cash Position 4,243 1,882 4,216 -596 -496 71 -865 -595 -349 4. Additional Operating Cash Outflows 10,044 6,666 6,786 2,071 1,459 1,485 1,142 755 722 5. Additional Operating Cash Inflows 5,839 5,535 6,918 1,147 1,562 1,632 656 891 826 6. Final Operating Cash Position 38 751 4,348 -1,520 -393 218 -1,351 -459 -245 7. Loans less than 1 year 11,041 8,919 7,529 2,935 2,582 2,169 1,570 1,315 1,254 8. Share of loans less than 1 year that
must be repaid (%) 0 0 0 52 15 0 86 35 20
a Assumes banks receive 80% cash repayment of interbank assets less than one year, corporate fixed-income securities are sold for 80% of their current value, and banks
must pay out 80% of WMPs maturing within 1 year Source: Bank financial statements, Fitch
Banks
Chinese Banks
December 2011 10
At first glance, higher-rated Tier 2 banks‟ lending/forbearance capacity would appear to be adequate
for the coming year given that annual lending by these six entities has never exceeded CNY1.2trn.
However, when considered in the context of the accelerating erosion of liquidity across the sector, it
is conceivable that even these banks could begin to experience some crowding out. For example,
these banks began 2011 with enough cash to lend CNY2.2trn-2.6trn, but as the year comes to a
close these figures have dropped to CNY1.4trn-2.1trn.
If this accelerated rate of funding and liquidity erosion persists, it is conceivable that soon only
the big five state-owned banks will be in a position to consistently provide the magnitude of
intermediation and forbearance required to prop up growth and forestall asset quality
deterioration. After more than a decade of steadily declining market share, China‟s state banks
may soon be returning to the forefront.
Cash Cushions are not Static
The exercise above reflects the current state of affairs in China‟s banking system. The results
are not static, and can change if additional sources of funding are tapped (eg senior debt
issuance or equity raising) or if significant policy changes occur (eg large RRR reductions or
greater limits on WMP issuance). However, an increase in funding or cash cushions at any one
entity does not necessarily equate to an improvement in the system-wide cash position, which
in H111 could provide for approximately CNY37trn in lending/forbearance capacity.
This is because monies collected through new fund-raising often come from somewhere else in
the banking system – eg state banks which purchase senior debt of smaller banks, SOEs
drawing down deposits to subscribe to the rights issue of a joint-stock bank, or the PBOC
releasing reserves to small banks. In each of these instances, resources are merely transferred
from one balance sheet to another, and there is no net increase in liquidity at a system level.
This is why the steady rise in interbank borrowing, while temporarily helping banks meet their
immediate obligations, has done nothing to improve the overall liquidity situation. The only
ways to ease system-wide pressures are through:
strengthening organic deposit growth, which could be a challenge given the country‟s
narrowing current account surplus and moderating GDP growth, which itself is heavily
dependent on loose credit;
attracting new money from outside the domestic banking system, eg funds previously lost
to shadow banking, corporate overseas profits, or money raised offshore;
reducing deposit payout pressure by clamping down on short-term WMP issuance, which
the authorities have begun to do;
Figure 17
Lending and Forbearance Capacitya,b
Big Five State Banks
Tier 2 Banks with VRs of ‘bb−’
Tier 2 Banks with VRs of ‘b+’/‘b’
(CNYtrn) 2012e 2011 2010 2012e 2011 2010 2012e 2011 2010
Scenario 1 from Figure 15 – all interbank assets are fully repaid, all corporate securities are sold without loss, and only 60% of matured WMPs must be repaid.
13.4 11.1 12.8 2.1 2.6 2.6 0.7 1.2 1.2
Scenario 2 from Figure 16 – 80% cash repayment of interbank assets, corporate securities sold for 80% of current value, and 80% of matured WMPs must be repaid.
11.1 9.7 11.9 1.4 2.2 2.4 0.2 0.9 1.0
a These figures are in addition to irrevocable credit commitments less than 1 year, which are incorporated in the analysis
in Figures 15 and 16 and assumed to be fully met
b Assumes that 96% of loans less than 1 year are repaid. At end-H111, NPLs and “special mention loans” amounted to
4% of gross loans in aggregate for these 16 banks Source: Bank financial statements, Fitch
Banks
Chinese Banks
December 2011 11
accelerating broad money growth through reducing sterilisation operations and/or printing
money, which have obvious negative implications for inflation, or through increasing the
money multiplier by pressuring banks to lend, which would worsen leverage;
lessening the forbearance burden on the banking system by providing some type of bailout
package for the worst loans.
Resources Appear Sufficient for the Short-Term
For the time being, the current CNY37trn in system-wide credit capacity – of which CNY21trn
resides at commercial banks (more than CNY2.8trn of this is already committed) and the rest in
the form of deposit reserves at the PBOC – would appear to provide sufficient resources to
prevent any major dislocations over the short term. That said, these resources are largely in the
hands of the big five state-owned banks. Many small banks have a shrinking capacity to extend
new credit or forbearance, and may require substantial RRR relief ahead.
If current rates of funding and liquidity erosion continue, then looking into late 2012 and beyond,
it is conceivable that certain parts of the system could begin to encounter significant cash
constraints. This is particularly the case if forbearance burdens begin to rise appreciably, or if
inflation remains elevated enough to prevent aggressive monetary easing.
The authorities‟ response to the SME crisis in Wenzhou suggests that banks may not only face
pressure to support existing loans, but also potentially non-bank and other shadow financing,
which now exceeds CNY20trn outstanding excluding offshore financing based on the Fitch-
adjusted TSF. The order not to recall loans to SMEs in distress, and to extend them new
money to help pay off informal creditors, in essence transfers shadow banking exposures into
the formal banking system. Although substantial, the current level of credit capacity is thinner
than pre-crisis, having fallen to an estimated 77% of GDP or 2.1x the Fitch-adjusted TSF in
2011, from 95% of GDP or 4.3x the Fitch-adjusted TSF in 2008.
If significant cash constraints do arise at some point, a choice will have to be made between
loosening liquidity by accelerating broad money growth at the risk of re-igniting inflation and/or
worsening leverage, or continuing to make due with existing resources. If inflation remains an
issue and authorities must work within existing liquidity constraints, then some tough decisions
may have to be made about whether to continue to direct large amounts of money into
forbearance – thereby limiting the amount of new credit to healthier borrowers and crowding
out GDP growth – or allowing dormant asset quality problems to finally begin working their way
through the system. It is this cash constraint, rather than what NPL ratios may or may not
signal, that ultimately matters, and could be what eventually forces the hand of the authorities
with regard to a potential bailout further down the road.
Looking Ahead
The analysis above demonstrates why – with what appear on the surface to be relatively clean
balance sheets and solid earnings – the Chinese banking sector encountered system-wide
cash crunches in January and June 2011, why banks are paying 300bp above fixed-base
deposit rates in auctions of MOF deposits, and why market-driven interest rates continue to
trend higher. Loan rollovers/restructurings, transfers of assets off-balance-sheet, and
transactions with NBFIs may be preventing current stress from becoming apparent in NPL
ratios, but cash positions clearly show that the banking system is under growing strain.
Although prolonged forbearance has been successful on numerous occasions in the past, this
time Chinese banks are entering the credit cycle with significantly weaker cash cushions and a
much larger stock of financing to carry. Unlike the last major run-up of bad loans in the late-
1990s, this time there is no force like WTO accession on the horizon to propel the economy out
of its difficulties.
Figure 18
Required Short-Term Loan Repayment by Banks, 2011ea
Bank
Required Payback of Loans < 1yr (%)
ICBC 0 ABC 0 CCB 0 BCOM 14 BOB 19 MIN 26 BOS 27 SPDB 35 BOC 42 MER 44 HXB 44 CITIC 60 IND 72 SZDB 72 CGB
b 74
CEB 87 a Average of Scenarios 1 and 2 as laid out
in Figure 17 b End-2010
Source: Bank financial statements, Wind Information, PBOC, Fitch
Banks
Chinese Banks
December 2011 12
Looking into 2012, Fitch expects funding and liquidity will remain under strain as growth of
wealth management offerings adds further WMP payout pressures, and borrower stress drives
forbearance burdens higher. In H111, listed banks posted an increase in cash outflow
obligations of 30% un-annualised (Figure 15, Line 1), compared to growth of cash
inflows/sources of cash of just 12% (Figure 15, Line 2). Add to this decelerating deposit growth
and increased pressure to lend, and it is difficult to see how liquidity and funding conditions can
ease significantly absent substantial RRR relief.
Going into next year, the Chinese banking sector faces four key risks, all of which could lead to
a worsening of funding and liquidity erosion and place the system on an accelerated timetable
toward future cash constraints:
rising forbearance burdens due to growing repayment difficulties among borrowers, in
particular local governments, property-related entities, and SMEs;
further deceleration in deposit growth, which could result from slowing economic
expansion, outflows of capital, or something as benign as a strong rebound in the equity
market that would attract away household deposits as occurred in 2007;
persistently elevated inflation, which, while falling, could remain high enough to prevent the
authorities from aggressively easing liquidity conditions through RRR cuts;
a freezing-up of the interbank market due to tightened liquidity at large state banks and/or
heightened concern about the health of counterparties.
Given the rising level of stress evident in several aspects of Chinese banks‟ operations –
including asset quality, capitalisation, funding and liquidity – Fitch is becoming increasingly
cautious about the medium-term outlook for mainland banks. These concerns could lead to
negative action on some Viability Ratings in coming months, with the ratings of smaller banks
with thinner cash cushions the most vulnerable (Figure 19).
Figure 19 Fitch’s Ratings of Chinese Banks
Bank Support Rating
Viability Rating
Long-Term Issuer Default Rating
a
China Development Bank (CDB) 1 NR A+ Agricultural Development Bank of China (ADBC) 1 NR A+ Export-Import Bank of China (EXIM) 1 NR A+ Industrial and Commercial Bank of China (ICBC) 1 bb A China Construction Bank (CCB) 1 bb A Bank of China (BOC) 1 bb A Agricultural Bank of China (ABC) 1 b+ A Bank of Communications (BCOM) 1 bb− A− China Merchants Bank (MER) 2 bb− BBB China CITIC Bank (CITIC) 2 bb− BBB China Everbright Bank (CEB) 2 b+ BBB Shanghai Pudong Development Bank (SPDB) 3 bb− BB+ China Minsheng Banking Corporation (MIN) 3 bb− BB+ Bank of Beijing (BOB) 3 bb− BB+ Bank of Shanghai (BOS) 3 bb− BB+ Industrial Bank (IND) 3 b+ BB+ China Guangfa Bank (CGB, previously Guangdong Development Bank, GDB)
3 b+ BB+
Shenzhen Development Bank (SZDB) 3 b+ BB+ Hua Xia Bank (HXB) 3 b BB+ a The Long-Term Issuer Default Ratings (IDRs) of all 19 Chinese banks are based solely on expectations of state support
Source: Fitch
Banks
Chinese Banks
December 2011 13
Appendix – Update on Wealth Management Offerings
Wealth management offerings of Chinese banks continue to gain popularity as competition for
funding intensifies, and negative real savings rates drive a search for yield. As regulatory
scrutiny of loan- and discounted bill-backed products has risen, issuance has shifted toward
non-credit-related mixed-asset products. By end-Q311, approximately 9.5% of total deposits
had migrated into WMPs, with outstanding products reaching an estimated CNY7.7trn
(Figure 20, 2010: CNY4.4trn, 2009: CNY2.3trn).
Fitch considers the liquidity risk arising out of Chinese banks‟ wealth management activity to be
nearing a critical mass where it could begin to become destabilizing. As demonstrated earlier,
the increased mobility of deposits and the constant, intensifying pressure to meet product
payouts is eroding the funding and liquidity positions of banks across the sector. At the same
time, product credit risk continues to be a concern, with upwards of CNY1.7trn in regular loans,
at least CNY1trn in discounted bill loans, and several hundred billion in corporate fixed-income
securities sitting in WMPs.
The continued absence of strict guidelines requiring that assets and liabilities of WMPs be
evenly matched means that the vast majority of products continue to be managed on a pooled
basis. Given the extent to which wealth management offerings have grown, these pools have
reached a magnitude where they are now akin to full-fledged hidden second balance sheets,
containing a myriad of mismatched, undisclosed assets and liabilities, and nothing but on-
balance-sheet capital and reserves to absorb losses.
Explaining the Numbers
In the past, Fitch‟s analysis of Chinese banks‟ wealth management offerings focused solely on
loan- and discounted bill-related products due to concerns about the understatement of credit
growth and credit exposure, as well as hidden credit risk. However, the agency has now
expanded its analysis to the entire universe of products issued to gain a better understanding
of the full extent of the liquidity pressures from this activity.
The CNY7.7trn figure above relates to total outstanding products sold publicly and captured by
third-party data provider Wind Information. Excluded from this number are all WMPs that have
matured, all unobserved products sold in private placements, which are believed to be
significant, all issuance by foreign banks (which had 1,443 products outstanding in Q311), and
all issuance not disclosed by banks to Wind. The estimate above differs dramatically from a
recent figure from the PBOC that placed the size of wealth management activity at CNY3.3trn
at end-Q311. However, the PBOC‟s number relates only to those WMPs sitting off-balance-
sheet, whereas Fitch‟s estimate includes all WMPs outstanding both on- and off-balance-sheet.
While substantial, CNY7.7trn does not adequately reflect the full extent of payout pressures
arising from WMP activity in 2011 as it excludes the more than 8,300 products that were issued
and matured between January 1 and September 30. Every product that matures represents a
cash payout obligation for the issuing bank. In total, more than CNY12trn in products matured
through end-Q311. Scenario 1 in the earlier cash flow analysis assumed that banks managed
to roll over 40% of maturing WMPs, and were required to only pay out 60% of the obligations.
While this ratio may seem high given the very short-term nature of such products, WMP
investors are highly rate-sensitive and mobile, and retaining this money over the long haul can
be quite difficult.
Some On-, Some Off-
As highlighted earlier, the constant movement of WMPs on- and off-balance-sheet is adding
significant volatility and distortions in numerous institutional- and system-wide data. However, it
is important to note that not all WMPs move back-and-forth. Every WMP begins its life on-
balance-sheet during the brief time when money is collected from investors. But following this
period, principal-guaranteed products must remain on-balance-sheet, while non-principal-
Figure 20
0
2,000
4,000
6,000
8,000
2007 2008 2009 2010 Q311
AB other(a)
AB discounted bill-related
Asset-backed (AB) loan-related
Nominal Amount of WMPs
Outstanding
a A large portion of these were previously
grouped with discounted bill WMPs
Source: Wind Information
(CNYbn)
Banks
Chinese Banks
December 2011 14
guaranteed products may be moved off until maturity if the bank so chooses. It is through this
strategic setting of product start and end dates that banks are able to control the flow of WMP
assets and liabilities on- and off-balance-sheet.
Figure 21
0.0 0.5 1.0 1.5 2.0 2.5 3.0
2009
2010
9M11
State banks
Joint-stock banks
Other banks(CNYbn)
Source: Wind Inf ormation
Average Product SizeMixed-Loan Products
0.0 0.3 0.6 0.9 1.2
2009
2010
9M11
State banks
Joint-stock banks
Other banks(CNYbn)
Discounted Bill Products
0.0 0.4 0.8 1.2 1.6 2.0
2009
2010
9M11
State banks
Joint-stock banks
Other banks(CNYbn)
Other Asset-Backed Products
As of end-Q311, roughly 20% of outstanding WMPs were principal-guaranteed products
permanently residing on-balance-sheet. Of the remainder, approximately half had yet to mature
and were still off-balance-sheet, while the rest were newly launched WMPs still in the phase of
collecting money, and therefore temporarily on-balance-sheet but likely to soon move off-.
When an off-balance-sheet WMP matures and the money returns on-balance-sheet, the assets
underlying the product do not always return with it. In some instances, banks leave the assets
off-balance-sheet, and conduct a reverse repo with the WMP (resulting in a rise in deposits on
the liability side of their balance sheet and reverse repos on the asset side). This means that
some reverse repos are temporary shell transactions not necessarily backed by any real near-
term cash flows. Hence, some Chinese banks‟ liquid assets may be somewhat overstated.
Product Complexity Rising
As competition for funding intensifies, the yields offered on WMPs has been climbing (Figure
23). Achieving the returns to meet these yields is leading to issuance of more complex, high-
risk products, such as re-securitised products containing other banks‟ WMPs, trust products,
and products broken into risk tranches. While these types of WMPs do not appear to have
exceeded more than 5% of total issuance in thus far in 2011, they highlight the pressure banks
are facing to find assets commensurate with rising yields now that the CBRC has largely shut
the door on issuance of credit-backed products.
Figure 22
0
2
4
6
8
1-90
day s
91-180
day s
181-365
day s
1-2
y rs
H110 H210
H111 Q311(%)
Source: Wind Inf ormation
Yield CurvesLoan-Backed Products
0
1
2
3
4
5
1-90
day s
91-180
day s
181-365
day s
1-2
y rs
H110 H210
H111 Q311(%)
Discounted Bill Products
0
1
2
3
4
5
1-90
day s
91-180
day s
181-365
day s
1-2
y rs
H110 H210
H111 Q311(%)
Other Asset-Backed Products
Banks
Chinese Banks
December 2011 15
Product Disclosure Still Poor
Thin disclosure remains a key source of concern. Rarely do product descriptions identify the
precise make-up of assets – eg corporate bond number „a‟, issued by Company B on date „c‟
for amount „d‟ – and there is no third-party validation that product descriptions match reality.
Meanwhile, no information is provided on the extent of WMPs sold as private placements, no
central publicly available catalog exists of WMPs issued and outstanding, and products still do
not contain unique identifier codes to trace them.
For these reasons, if there were to be widespread problems among WMP offerings, unwinding
the products could be extremely difficult, and it is unclear to what extent banks would truly be
able to impose losses on investors, who would appear to have a strong argument that critical
details were never disclosed and products not fully represented. In this light, it is questionable
whether WMPs should be allowed to be shifted off-balance-sheet in the first place.
Regulations Slowly Tightening
Regulatory scrutiny of wealth management offerings has intensified, and a number of new
guidelines have been put in place to safeguard activity. These include bans on the inclusion of
certain types of assets such as entrusted loans, enhanced guidelines on product disclosure,
and a ban on issuance of products less than one month in maturity.
While clearly steps in the right direction, the critical issues noted above remain unresolved, and
there continues to be a gap between what is announced by regulators and what actually
happens in reality due to differing interpretations of the rules and differing degrees of
enforcement. The order to bring on-balance-sheet all loan-backed wealth management
products by end-2011 is an example. With one month left, some banks say it remains unclear
precisely which products have to be brought on-balance-sheet, eg loan-only or loan-mixed
WMPs, where the assets should be recorded in financial statements, and what provisioning
and capital charges are required.
Rating Implications
Since the Long-Term IDRs of Chinese banks are driven entirely by expectations of state
support, they are unlikely to be affected by wealth management developments without a large
shock in this activity requiring government assistance. Chinese banks‟ VRs already incorporate
the extent of each institution‟s participation in this activity. That said, given the rapid growth and
increasing complexity of products, some VRs could be revised downward if activity were to
materially increase current levels of liquidity and credit risk. Figure 24 below highlights
upcoming product maturities for the 16 commercial banks under Fitch coverage.
Figure 23
0
150
300
450
600
750
900
BCOM ICBC BOC CCB CEB MER BOB SPDB SZDB MIN HXB ABC BOS CITIC IND CGBOther(a)
Q411 Q112 Q212 H212 2013+(No. of products)
Breakdown of Remaining WMP Maturities as of end-Q311
a Includes WMPs issued by more than 50 city and rural commercial banks
Source: Wind Information
Banks
Chinese Banks
December 2011 16
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