China has strong defense against bank crisis - report

China has the tools to prevent a financial crisis from materializing in the near future, while efforts need to be paid to facilitate debt restructuring process, according to a report by global rating agency Moody's on Thursday.

"Although China exhibits a number of pressure points associated with spillovers from other countries, the nation’s domestically-funded and state-backed financial system, combined with its wide range of policy tools, will act to "help manage systemic risks in the near term," said Michael Taylor, a Managing Director at Moody's and Chief Credit Officer for Asia Pacific.

In the meantime, what China needs to be concerned about is that capital outflows may challenge the banking system’s liquidity, pointing to possible currency devaluation and weakening of accommodative monetary policy, the report said.

Taylor said that the authorities will be cautious in their approach and will continue applying existing capital controls more rigorously over a prolonged period for risks associated with financial liberalization.

As for the banking sector in particular, the report highlighted the need to take debt restructuring measures. Issuing loans to already highly indebted borrowers would further impair the banks' performance and raising their recapitalization requirements.