Fitch Ratings' recent upgrades of Chinese banks Industrial Bank (SHA:601166) and Shanghai Pudong Development Bank (SHA:600000) reflect an improved view of the likelihood of timely government support if needed, according to a recent release.
The banks hold regional significance and key linkages with their local governments, with both further boosting their franchises since being designated as domestic systemically important banks, Fitch said.
Meanwhile, easing growth appetites and less shadow banking risks support the viability rating upgrades on five mid-tier banks, Fitch said.
The other three banks are China Merchants Bank (HKG:3968, SHA:600036), China CITIC Bank (HKG:0998, SHA:601998), and China Everbright Bank 9HKG:6818, SHA:601818).
Fitch views the support possibility for China's large mid-tier banks as stable to improving, based on the domestic systemic importance, solid state or local government relationships, and a high propensity to support the sector.
However, vulnerability to entrusted investments and off-balance-sheet wealth management products further strains Fitch's view of banks' risk and financial profiles, especially for mid-tier ones.
Large mid-tier banks are well capable of weathering macro and external challenges given lower margin constraints, growing capital buffers, and strong domestic liquidity, according to Fitch.
China is also more resilient than most Asian peers under an adverse Middle East scenario, while Chinese banks' operating environment score is lower than some regional peers in smaller markets, Fitch said.
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