Rating agency Fitch issues cautious outlook on Chinese banks

While reporting a 'stable' ratings outlook on banks in the Asia-Pacific region, ratings agency Fitch has expressed, what it calls, "somewhat cautious views" on banks in China and Vietnam.

The caution comes despite the broader sector rating outlook for China currently being 'stable".  According to Fitch, this is because their moderating profitability and relentless growth are pressuring capital, thereby weakening their credit profiles; a challenge which is reflected in their low individual ratings.

In contrast, in a report, 2011 Outlook: Asia-Pacific Banks, published today, the rating agency's 'stable' outlook for banks in the Asia-Pacific region reflects its expectations that healthy, albeit slightly slower growth for the region in 2011, would support the credit profiles of the banks in the region, as would the banks' generally defensive qualities should there be any change in global economic momentum.

Global investors' interest in Asia-Pacific economies and markets is evident from the sizeable capital inflows, which are raising the risks of inflation and asset bubbles.

Some central banks have already begun tightening monetary and credit conditions in the face of mounting inflationary pressure.

However, a commodities-inflation shock which is more severe than Fitch expects, and / or policy mis-steps that see authorities fall "behind the curve" of local inflation expectations, could lead to sharper monetary tightening and a downside risk for Fitch's growth forecasts.