Upbeat view on asset quality

Bankers see North America as top destination for overseas expansion

Chinese bankers are optimistic about future asset quality despite tougher capital standards and lower expectation of profit growth, according to survey results released by the China Banking Association and PricewaterhouseCoopers on Wednesday.

A Bank of China outlet in Qionghai, Hainan province. The Chinese Bankers Survey Report showed that more than half polled expect the non-performing loans rate to remain under 1 percent over the next three years. Meng Zhongde / For China Daily

In addition, ambition among the lenders to develop overseas seems untouched, with North America replacing Europe as their favorite destination, the report said.

The Chinese Bankers Survey Report (2012) showed that more than half expected the non-performing loans rate to remain under 1 percent over next three years.

But bankers remain cautious about lending to real estate, local government financing platforms and small businesses, classifying them as major sources of loan defaults, said Jimmy Leung, PwC's China banking and capital-markets leader.

"With increased downward pressure on the economy, risk factors faced by China's banking sector gradually increased," he said.

The survey was conducted from April to June in 31 provinces, municipalities and autonomous regions and received a total of 850 valid questionnaires. The survey also interviewed 25 top Chinese banking executives on site, including directors, vice-presidents, top executives at branch levels and head of departments at head offices.

Leung said it is worth noting that bankers have always focused on the risk of local government financing platforms, although clearing up and standardizing financing-platform loans are resolving some of those issues.

The survey showed that more than 60 percent of the bankers believe that the volume of local government financing-platform loans should be lowered, while 46 percent believe that the risk of such loans will not be severe, but defaults may emerge in some regions.

As it did in 2011, in the context of an economic downturn, the bankers' biggest concern was credit risk, the report said.

And nearly a half of the bankers forecast regional financial risks will probably turn up in the next five years in eastern areas.

Bad loans have become a major concern among banks and analysts as NPLs have increased for four consecutive quarters - the longest period of asset-quality deterioration since 2004, when authorities began to release such figures.

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