Although we did see Bolt and Bank, for example, was one of the examples of
financial institutions that were allowed to fail in China.
D.C. regulators paying a lot more attention
this time given what's going on overseas.
If we look at what's happened within the China regulatory landscape since 2017,
for example, that actually has been quite a lot of regulatory efforts in
pushing forward financial reform to address somewhat the contagion risk at
these smaller Chinese banks. For example, we talked extensively about
the risks with smaller Chinese bank than whether it relates to their off balance
sheet exposure or the fact that at some point for some of these smaller Chinese
banks, it was possible that up to 40 or 50 percent of their assets were invested
in investments. And that, of course, would increase
contagion risk if there was stress within the financial system.
But with the reduction in some of these off balance sheet financing, shadow
financing activities in recent years, we feel that this risk has subsided for
China. Also, more importantly, we do see more
examples of pre-emptive regulatory intervention from mainland authorities,
and that also helps restore market confidence.
We have seen some of these signs that potentially they're preparing for the
possibility of needing bailouts, the building of the Financial Stability
Fund, the encouraging of provincial governments on these bond issuances to
to recapitalize smaller banks. How much of a turnaround is this, given
that there's been a lot more focus on, you know, the avoidance of moral hazard
of of market discipline over the last few years?
What the size of the deposit insurance scheme in China is still relatively
small. So India, plenty of distress.
We still expect the D state to come in and provide support.
And so far, when we look at the competitive landscape in China at the
moment, indeed, Deej Small, no Chinese banks are finding it increasingly
difficult. Whether it's because of asset quality
pressure from properties, for example, the smaller banks tend to have a
narrower geographical focus. So for those that operate in lower tier
cities, they will be under greater asset quality pressure and also profitability.
And that, of course, flows through into the capitalization.
Much of the recent changes with regards to the proposed new capital rules and
also aiming to centralize some of the regulatory power that really is aimed to
reduce inconsistency within the sector. And in that purpose, you know, hoping to
improve the comparability and also also the supervision for all banks within the
system. You mention about more regulatory
oversight recently coming from Beijing. Tell us a little bit about how that's
impacted some of your views of the smaller lenders that we talked about and
perhaps even the bigger ones. By and large, the banking system,
commercial banks, basically it is a confidence
model. Right.
You can't have banks functioning properly if people do not believe in the
viability of the banks. And so I think a lot of the regulatory
reform really is aimed at reducing systematic contagion, miss.
It is aimed to improve governance and also transparency within the sector.
And these trends, you know, if proved to be sustainable and indeed, if the
execution of these reforms result in a better disclosure, then that could be
potentially created positive to how we view the operating environment for
Chinese banks.