Capital constraints
"By 2013 China's banking sector assets will have risen by nearly US$14 trillion at current growth rates, which is equal to replicating the entire US commercial banking sector in five years," Fitch Ratings said in the latest report.
"But such massive expansion is not sustainable because rising leverage either will swamp borrowers' ability to repay, or banks' funding and capital needs will fall short of existing resources," Fitch said. "Capital constraints will increase in 2013 due to reduced profits from greater interest rate flexibility and higher credit costs."
Haitong Securities, one of the leading brokerage firms in China, remains rather optimistic in its outlook for banking.
Capital limits will not impose significant constraints to credit growth, Haitong argues. Core capital adequacy in both the "Big Five" and in joint-stock banks improved in the third quarter by about 5 basis points, it said.
"For regulators, there's still room for discretionary supervision to avoid capital constraints and facilitate credit expansion as well as economic growth," said the brokerage firm.
The US Federal Reserve recently announced plans to postpone the implementation of Basel III accords, a set of global rules that would triple the amount of capital banks are required to hold as a buffer against losses.
The Fed said it made the decision after receiving strong comments that the new rules would be an extra cost for banks and could stall an insipid economic recovery.
According to third-quarter financial reports, all listed banks in China already have met the capital requirements of Basel III, which into effect on January 1.
"Even as profitability of banks slowly recedes, retained capital is still ample for steady growth of loans in the long run," according to Haitong.
Landmark building should respect the public's feeling
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