We believe idiosyncratic credit events may occur over the next 12 months, but systemic bank risk is remote.
Our stress tests show the Chinese banking sector as a whole can absorb shocks from a severe downside scenario, but mid-sized banks and contagion pose potential risks.
Following strong double-digit profit growth in FY2021, we expect Chinese banks will be less profitable this year as COVID-19 lockdowns continue to disrupt China’s economy.
In the absence of immediate and substantive policy easing at the national level, we believe that the sector could pose a serious risk to the government’s GDP growth target in 2022.
We expect a faster profit recovery for major systemically-important banks than second tier peers.