The earthquake's impact on China's national banks is expected to be far more manageable than on smaller institutions in the damaged regions, Standard & Poor's Ratings Services said yesterday.
Banks are also likely to suffer more from corporate loans not being paid back than from mortgages, the rating firm said.
"State-owned commercial banks and joint stock commercial banks in China are expected to be able to withstand the effects on their loan quality," said Standard & Poor's credit analyst Liao Qiang. "This is because they have far more sizable and diversified loan portfolios."
The aggregate exposure of all national banks to Sichuan Province only accounted for 3.21 percent of their total loan books at the end of 2007, the China Banking Regulatory Commission statistics showed.
The ratings on Industrial and Commercial Bank of China, China Construction Bank Corp, Bank of China, Bank of Communications Co, and China Merchants Bank Co are not affected.
"On the other hand, city commercial banks, rural credit cooperatives or other grass roots financial institutions with a high concentration of exposure in the hard-hit area will be affected heavily," Liao said.
S&P currently does not have ratings on smaller institutions.
Banks are going all out to support the victims in quake-hit areas by waiving default charges, granting loans with low interest and donated millions of yuan to support the region's economy. The banks have offered 3.59 billion yuan (US$513 million) of loans for reconstruction work as of May 19.
"The severity of the impact on loan quality will depend on the geographic concentration of individual banks," said S&P credit analyst Ryan Tsang. "The quality of loan portfolios with a high concentration of local companies in the hard-hit areas will see a very significant deterioration."
Liao said although the earthquake has caused incalculable losses for many, ''we expect the credit cost stemming from mortgages to be minimal for national banks, given that the severely hit area is economically less developed and likely to represent a negligible portion of these banks' housing loans." Chinese lenders are likely to selectively ease credit control to help rebuilding the severely-damaged areas.
(Shanghai Daily May 22, 2008)
