Sunday, February 07, 2010

Chinese Banking Financial Strength Rating Is Just Beating Iceland & Kyrgyzstan.....

I must admit that even as a long time sceptic ( see here , here & here for some recent extreme examples of "creative accounting" & "froth") i´m surprised that the ratings are that ugly....... At least the rating are rewarded with the highest price to book ratio......

Ich muß gestehen das selbst ich als alteingesessener Skeptiker ( siehe hier, hier & hier für die letzten Auswüche an "kreativer Bankenbilanzierung" & "leichten Übertreibungen" ) doch überrascht bin das die Ratings so desaströs ausfallen.....Paßt hervorragend in die Zeit das genau diese Institute weltweit die mit Abstand höchsten Bewertungen erzielen......

Fitch Scratches an Itch WSJ

That's one interpretation of Fitch Ratings' decision to downgrade China Merchants Bank and China Citic Bank. Fitch is worried about the strain that a lending splurge last year is putting on their capital positions, even though CMB, for one, is in the process of raising $3.2 billion via a rights issue.

In truth the downgrades are more of a catch-up exercise for Fitch, placing CMB and Citic on the same footing as most Chinese banks. Eleven of the 16 Chinese banks to which it gives an individual rating are now ranked "D'; the others are rated below that.

And Fitch has for some time come across as bearish on the sector. Its analysts have raised concerns about practices like the repackaging of loans into wealth management products, and the way Chinese banks classify loans.

But it's not alone in showing what might seem a surprising caution about the Chinese banks' prospects. Moody's average rating for their financial strength is D-. On that scale, onlysix countries are worse off, including Iceland and Kyrgyzstan.

The concern all the agencies share is whether recent improvements in the way Chinese banks are run have been enough to match the huge increase in risk on their balance sheets as a result of last year's lending boom. None are expecting immediate answers: dire warnings of a large rise in non-performing loans at Chinese banks are based on the assumption that the music will stop, and their vulnerabilities will be revealed all at once.

In reality, the process could take some time: true recognition of nonperforming loans will likely be delayed by tactics such as rollovers or extra lending to pay off loans gone bad, the sort of practices Fitch has often highlighted.
Fitch

D: A bank that has weaknesses of internal and/or external origin.

There are concerns regarding its profitability and balance sheet integrity, franchise, management, operating environment or prospects. Banks in emerging markets are necessarily faced with a greater number of potential deficiencies of external origin.

To be sarcastic i would argue that this definition is probably true for most banks worldwide.. ;-) No wonder the regulators are a bit nervous.... It wouldn´t surprise me if we will see some monster ( i don´t mean a few billions here & there ) captital increases in the not so distant future....... Probably in large part funded via several goverment controlled entities.... I repeat myself but if you want to get the best insight on China the blog from Michael Pettis is a must read!

Böse formuliert würde ich behaupten das die Definition von Fitch auf die meisten Banken weltweit zutrifft... ;-) Kein Wunder das die Offiziellen doch leicht nervös werden..... Ich denke es stehen uns in China demnächst einige Monsterkapitalerhöhungen ins Haus.... Rede da nicht von einstelligen Mrdbeträgen...... Würde mich wundern wenn das zum großen Teil aus privaten Mitteln finanziert wird...Wer einen erstklassigen und vor allem zeitnahen Blick auf das Geschehen in China haben möchte für den sollte China Financial Markets von Michael Pettis Pflichtlektüre sein....

Update:

Nonperforming Loans in China Rise to "Trillions of Renminbi Mish

China's financial system / Red mist Economist

Perhaps the only Western equivalents of a Chinese bank are the two American housing agencies, Fannie Mae and Freddie Mac—vast institutions with political mandates to expand credit, and protection from the consequences of their role in fostering bad debt.
China’s metropoli bubble fear FT Alphaville

We believe that we now have a bubble in many cities, particularly the big ones

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3 Comments:

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BoCom is the 5th largest bank

BoCom to raise $6.14 billion in rights offer MW

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