China’s top lenders tout limited exposure to western banking crisis

China’s largest banks, including Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, and Bank of China reported that they had been unaffected by the collapse of Silicon Valley Bank and Credit Suisse in Europe and the US. The banks have all shown strong earnings, and there has been limited exposure to risks that include exposure to regional US and European banks. While there are concerns surrounding the banks’ cash management and liquidity, all have passed stress tests.The news comes despite subdued economic growth in China and an unprecedented downturn and high levels of corporate debt in the property sector, which is a major driver of the Chinese economy. Despite better than expected financial results, China’s top lenders consistently warned of persistent risks, coming mostly from the property sector. The non-performing loan ratio for property at China Construction Bank nearly doubled year on year. China’s real estate sector has encountered numerous setbacks, including developer bond and loan defaults, as stringent debt control tightens the industry’s liquidity lines. 
Chinese regulators have been pursuing measures such as requiring banks to set up “living wills” after bankruptcy or takeover events. Following the collapse of SVB and Credit Suisse, the biggest lesson for China’s financial system planners and regulators is not to “create the environment” that puts banks into a similar position. Critics have called for limited intervention, arguing that radical changes in monetary policy would be a bad idea, as this could put undue strain on the banking system. While some banks have ways to prepare, not all banks are well-managed. 
Overall, the banking crisis in Europe and the US has somewhat dented China’s faith in the wisdom of regulators. Chen Long, the founder of Beijing-based research company Plenum, stated that the “the framework of regulating banks globally now looks insufficient at least,” adding that “the irony is that the Swiss are viewed as leaders in how to regulate banks. Then Credit Suisse, the [country’s] second-largest bank failed.” China’s own banks now look robust, despite risks stemming from the booming property sector.



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