Chinese banks to face profits squeeze?

25 May 2011

Banks in China could face a profits squeeze over the next few years as a result of the country's efforts to tighten monetary policy and reduce credit risk, it has been suggested.

Standard and Poor's has claimed such movement may also lead to a significant increase in bad assets.

Despite reaffirming its stable outlook for the banking sector in China, the ratings agency noted the stronger capital bases of larger lenders will make it easier for them to adapt to policy tightening.

Qiang Liao, director of financial services ratings at Standard and Poor's, said: "Inflation and a possible economic slowdown stemming from tightening measures could lead to a spike in credit losses over the next two to three years."

The People's Bank of China recently noted that lenders in the country are to increase their reserve requirements in an effort to restrain prices, with the amount they need to set aside rising to 0.5 percentage points.

By Tony Aynsley

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