Survey suggests banks face rising risks

As economic growth decelerates and some industry sectors face growing oversupply issues, the risks from the recent credit boom appear to be rising for the country's banks, according to the findings of a survey released by Standard & Poor's Ratings Services on Thursday.

The survey examined the credit profiles of China's top 50 banks by asset size, and assessed the credit outlook for China's banking sector.

"Rising credit costs, compressing interest margins, and growing pressures on non-interest incomes are likely to constitute a triple-hit to bank earnings," said Liao Qiang, S&P's senior director.

"In particular, we think it is highly likely that the banks could incur substantially higher credit losses in the coming years."

The major banks appear to be better placed to withstand the economic downturn, the report said.

In contrast, a majority of the smaller players are likely to experience a further weakening of capitalization and some may even witness significantly deteriorated funding and liquidity profiles, it said.

The report also notes that liquidity management among China's top banks is becoming increasingly strained.

"Should those regional banks that have relied heavily on interbank financing suffer severe credit losses and potential depositor runs, we would expect there to be wider negative repercussions for the banking sector as a whole," Liao said.