Many mainland banks are not making enough provisions for bad loans despite rising credit risks in the global economy, credit agency Standard & Poor's has warned.
'Many banks prioritise expanding their asset base and market share over strengthening their capital,' said S&P analyst Chew Ping. 'Their provisions failed to take into account the credit cycle as a whole.'
Mainland lenders last year made bad-loan provision at an average 0.39 per cent of their assets, significantly lower than the 1.41 per cent of previous years, S&P said. Mr Chew said a figure of 0.86 per cent would be more acceptable.
The credit agency said that despite robust earnings last year, banks as well as property companies could be exposed to rising interest rates and a slowdown in the United States economy. Earnings would continue to grow but would not be as robust as last year. The People's Bank of China last week raised interest rates for the fifth time since March.
Net income for 200 mainland companies surveyed by S&P grew an average of 23.3 per cent last year while their revenue rose 25.5 per cent. The firms included those involved in property, retail, manufacturing, energy and mining.
These companies faced a drop in investments gain amid volatility in domestic stock markets, S&P added.
The benchmark Shanghai Composite Index grew 42.8 per cent in the first half of the year, bringing a windfall of 115 billion yuan to the listed companies that speculated on the stock market, according to Wind Information, a financial data provider.
