BEIJING (XFN-ASIA) - China's major banks have sufficient financial strength to absorb stiff challenges this year, provided the government does not overly interfere in their lending processes, Standard & Poor's Ratings Services said.
In a new report, S&P warned that the recent policy shift from monetary tightening to expansionary measures could undermine underwriting standards and reduce profitability and capitalization. But the move could reduce pressure on some marginal borrowers and prevent a sharp rise in non-performing loans this year, it said.
S&P analyst Qiang Liao noted that corporate default rates are likely to rise in 2009, particularly among exporters and other industries with excess capacity and shrinking demand.
'As a result, banks will likely face weakening asset quality, rising impaired loans -- possibly by 204 basis points -- and significant constraints on profits in 2009,' the analyst said.
S&P has a stable outlook on China's banking sector.
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