Chinese banks will suffer from the global economic recession but not enough to badly damage their credit metrics, according to report from financial research firm Moody's.

Credit conditions in Chinese banks have differed sharply with those of other countries' banks over the last 18 months. They have been sheltered by a buoyant domestic economy and enjoyed double-digit profit growth from solid net interest income gains, rising capital levels and a decline in non-performing loans. They had minimal losses on structured credit products and their return on equity was significantly higher than the global average.

But the Chinese banking industry is not completely insulated, said the report. Demand for the country's exports in key markets has contracted. Economic growth has moderated and is expected to fall, depressing an already-weak property market. Interest margins are narrowing as monetary policy loosens to stimulate domestic demand.

Some economists have also expressed concern that the recent rush of credit (Chinese banks gave away 1.6 trillion yuan and 1.1 trillion yuan in January in February, respectively, as part of the government's stimulus package) and the potential for an increase in bad debts could hurt Chinese banks' credit fundamentals.

But the impact of these global pressures on Chinese banks could potentially be less and of a shorter duration than that on banks in other markets. The Chinese government's fiscal stimulus plan should help maintain overall economic stability, helping the banks in the long run.

(China Daily March 16, 2009)