Fitch says that while China is supporting liquidity, some banks exposed to squeeze
The latest on China ("China Banks: Funding and Liquidity". ) from Fitch Ratings, this via Reuters:
- Chinese authorities continue to provide the liquidity to financial institutions necessary to maintain stability in the financial system
- Following the tightening of financial regulations this year
- Nevertheless, a weakening of banks' liquidity and funding profiles has made some of them more vulnerable to a policy misstep or loss of market confidence that triggers a liquidity crunch.
Deterioration in banks' liquidity profiles in the last few years has necessitated a rise in liquidity support
- The big four state banks and Postal Savings Bank are still net providers of liquidity to the interbank system, but to a smaller extent than a few years ago.
- All other Fitch-rated mid-tier commercial banks now appear to be net liquidity taker (In 2013, all Fitch-rated commercial banks were net liquidity providers).
- The widening gap between assets and deposits has been filled chiefly by off-balance-sheet wealth management products (WMPs) and interbank borrowing. Mid-tier banks are especially reliant on these sources of funding.
WMPs and interbank liabilities, both of which have extremely short maturities, are the most likely triggers for market dislocation, even though the authorities have ensured there have so far been few instances of funding disruption.
- Systemic stress could also come from a system-wide tightening of liquidity, perhaps as a result of a policy misstep or major event that shakes confidence, such as a large and sustained resurgence in net capital outflows.