PBOC Releases Q4 Banking Sector Assessments, High-risk Lenders Drop by Half Compared to Peak

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The People’s Bank of China (PBOC) has just released the results of its assessments of 4398 banking sector financial institutions in China conducted in the final quarter of 2021.

PBOC’s assessments assigned one of 11 potential grades to Chinese lenders, running from 1 to 10 with an additional eleventh “D” grade.

Grades 1 to 7 are considered to be fall within the threshold of safety, while grades 8 to D are assigned to high-risk institutions.

The fourth quarter assessments looked at a total of 24 large-scale banks, 3997 small-to-medium sized banks, and 377 non-banking sector financial institutions.

The assessments found that 2201 Chinese banks fall within the “green zone” of grades 1 to 5, while a further 1881 banks are in the “yellow zone” of grades 6 to 7. Banks falling within the safe zone accounted for 99% of Chinese banking sector assets.

316 Chinese financial institutions were found to be within the “red zone” of grades 8 to D.

PBOC said that the number of high-risk financial institutions in China has more than halved from its previous peak of 649 following six consecutive quarters of decline, and that they currently account for just 1% of China’s banking sector assets.

China’s large-scale banks are the strongest in the banking sector, with 2 of them receiving a grade of 1, 11 a grade of 2, 7 a grade of 3, 3 a grade of 4 and just one a grade of 7. These 24 large-scale banks account for 71% of sector-wide assets.

Foreign-invested banks also scored well, with 93% posting ranks of 1 to 5, while 73% of China’s private banks also scored within this range. No foreign or private banks in China were deemed to be high-risk instiuttions.

Rural lenders – including rural commercial banks, rural village cooperative banks, rural credit societies and village county banks, were found to be the biggest source of risk in Chinese banking. They accounted for 289 of China’s high-risk institutions, owning 12% of sector-wide assets.