Moody's Investors Service has given a stable rating outlook for Chinese banks despite their weakness, the ratings agency said in its annual report on China's banking sector.
"Accelerating reforms and strong government support underpin the ratings stability of a weak banking system," Moody's said in a statement received here.
Longer-term however, the task of restructuring the banking and state-run industrial sectors and "China's ability to successfully manage the transition in opening up its closed financial sector to increased foreign participation" will be key to maintaining financial stability, the agency added.
The stable rating outlook reflects the Chinese government's strong support to the banking system, as well as the quickening pace of reform, the report said.
China set up four asset management corporations last year which bought billions of yuan in bad debt from the country's largest state-owned banks and are is now repackaging the debt and finding buyers for assets.
"Several major reform initiatives, including the asset management company scheme, have resulted in considerable benefits to the state banks and have laid the foundation for further restructuring," Moody's noted.
Moody's believes that the banks themselves, in response to the government's initiatives and in anticipation of increasing foreign competition, have become more pro-active and more customer-focused.
Many, in fact, are starting to tighten up internal controls and to refine their credit-review processes.
"A more commercial mindset is clearly emerging at Chinese banks," the report said, adding however that "these reforms notwithstanding, the Chinese banking system remains fundamentally weak."
Years of policy-directed lending has left Chinese banks near the brink of insolvency.
Moody's noted credit and risk management skills are still rudimentary, and that huge embedded credit losses remain unrecognized. Transparency remains poor and accounting and regulatory standards are low, it added.
Moody's also noted that tight government control continues to constrain the large state banks' ability to behave commercially, despite some increase in their autonomy.
The struggling state industrial sector continues to burden the banking system, it said, and "no quick turnaround can be expected."— (AFP)
© Agence France Presse 2000
© 2000 Mena Report (www.menareport.com)
