Fitch Teleconference: "Challenges Facing Chinese Banks in 2010"

Fitch Ratings-Beijing/Hong Kong-17 December 2009: Chinese banks may have emerged from the recent financial crisis relatively unscathed, but according to Fitch Ratings' most recent special report on the sector, Chinese banks and regulators will face a daunting task in balancing continued brisk growth amid accelerating capital burn in 2010.

Loans are expected to rise by upwards of 32% yoy in 2009, or USD1.5trn, with total loans/GDP increasing to 126% from 106% at end-2008.

"This is a tremendous amount of money to enter an emerging-market economy in the span of one year," said Charlene Chu, Senior Director and Head of China Bank Ratings. "Credit growth of this magnitude inevitably places a strain on banks' internal risk management, and raises concerns about a future deterioration in loan quality."

The report entitled "Chinese Banks - Annual Review and Outlook" also highlights the growing popularity of unreported loan transactions, which Fitch believes are increasingly distorting credit growth figures at an institutional and systemic level and represent an expanding pool of hidden credit risk.

"Over the past two years, the most disconcerting trend Fitch has observed in China's banking sector is the growing prominence of undisclosed loan transactions," said Chu.