(Bloomberg) -- China’s banking sector grew riskier over the last year, with about 13% of the nation’s 4,379 banks and other financial firms considered “high risk” by the central bank.
Five-hundred and eighty-six banks and other financing firms, mostly smaller rural institutions, were deemed highly risky in the 2019 China Financial Stability Report, published by the People’s Bank of China on Monday evening.
One bank got a “D” this year, meaning it went bankrupt, was taken over or lost its license. No banks were named in the report.
The health of China’s small banks has become a growing concern after the seizure of one lender in May forced losses on creditors and cast doubt on the longstanding assumption that the state would always backstop troubled banks. With the economy growing at the slowest pace in almost three decades and the trade war also hurting firms, the outlook for the banking sector remains challenging as efforts to boost growth and help struggling small businesses threaten to squeeze lending margins and lead to a pileup of bad debt.
See last year’s rankings here
While foreign and private banks are seen as relatively safe, more than one third of rural lenders were rated “high risk,” according to the report. Some medium- and small-sized financial institutions have received poor ratings because of the slowing economy, with small lenders more sensitive to macro economic changes, it said.
The central bank has notified each bank of its rating, and required some banks to increase capital, reduce bad loans, limit dividends and even change management, the report said.
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The central bank has made positive progress in containing financial risks in the past year, but warned that some potential threats can hardly be eliminated in a short time. Financial risks can “occur easily” and at a more frequent pace as economic growth slows and the possibility increases for global growth to fall.
Faced with this complex situation, the central bank should “stay cool-headed” and balance economic growth and risk control, it said. Into 2020 -- the final year in a three-year campaign to contain financial risks -- the PBOC said it’ll “fine-tune” its policies in line with changes in the economic situation, and pay attention to ensuring macro policies aren’t too tight or too loose. The general direction of financial risk control will stay unchanged, it said.