Moody's retains 'negative' outlook on China's banks amid challenges of emerging from Covid-zero

cnbc.com:

BEIJING — Ratings agency Moody's said Wednesday it maintained a «negative» outlook on China's banking sector as a result of a drawn out recovery after Beijing's Covid controls ended.

China's economy missed a national growth target in 2022 due to the spread of the highly contagious omicron variant and a prolonged slump in the massive real estate sector. While Beijing ended its stringent Covid controls in early December, the economic rebound so far has remained muted.

«The challenging adjustment to the exit from zero-COVID, for both borrowers and lenders, will weigh on banks' asset quality and profitability over the next 12-18 months,» Moody's said in a note Wednesday.

«Our outlook on the banking sector remains negative,» said Vice President Nicholas Zhu and Associate Managing Director Chen Huang, the authors of the report.

Moody's had changed its outlook on China's banks to «negative» from «stable» in November due to «deteriorating operating environment, asset quality and profitability.»

The ratings agency affirmed its negative outlook earlier this month. Wednesday's report focused on fourth-quarter data on Chinese banks' operations.

The pandemic damaged corporate and individual balance sheets over the last few years, and it will take time to repair them, even as the overall economy is recovering, China's National Bureau of Statistics spokesperson Fu Linghui told reporters Wednesday.

The statistics bureau's latest data showed slower-than-expected industrial production growth, retail sales that were in line with expectations, and better-than-expected fixed asset investment for the first two months of the year.

Chinese banks' asset quality face risks from non-performing loans, the Moody's analysts said.

Although those bad