Although global financial downturn partially impacted the Chinese banking industry in 2008, 2009 will be tougher as the crisis will hit the industry hard.
Chinese bankers have projected that the country’s banking industry will feel the full impact of global recession by the first half of 2009, as reported by CHINA DAILY.
While bankers have predicted gloomy future for the industry, China Banking Regulatory Commission (CBRC) revealed that the banking assets at the end of November 2008 reached 61.1 Trillion Yuan ($8.92 Trillion). However, it was just a 3% rise from 59.3 Trillion Yuan on September 30, 2008. To deal with the global financial meltdown, China is adopting moderately loose monetary policies and proactive financial policies.
Compared to other leading banking industries like the US and Europe, China’s banking industry has so far seen limited impact of the global financial crisis primarily due to less involvement of financial sector in the global financial system. But banks have to keep a check on risks created by tumbling domestic and international markets as the situation may get worse due to depleting profits. Other factors that impede the progress of the banking industry is narrow interest rate spread, increasing provisions for bad loans and shrinking loan demand from firms many of which stopped production due to low demand.
Furthermore, commercial banks are likely to be affected by the global financial meltdown in the first half of 2009. In fact, this will be a testing time for the banks because the global financial downturn and slow domestic growth may increase the number of loan defaults.
Bankers have suggested commercial banks to introduce new services to meet the demand of enterprises and counter the effect of global financial crisis. Some of these services include offering loans to enterprises for mergers and acquisitions and financial advisory services.
According to a Research Analyst at RNCOS, “As the financial crisis may deepen this year, the Chinese industry is expected to face tougher time ahead. Under such scenario, banking institutions have to take initiatives to ensure stability in the financial system and protect the rights and interests of depositors. The current global economic downturn should be taken as a lesson by the industry to improve its risk management system and credit services.”
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