Asia-Pacific Banks’ China-Related Risk Growing, says Fitch

Asia-Pacific (APAC) banks have accumulated about US$1.2 trillion of China-related exposure at end-2013, Fitch Ratings says in its
‘Asia-Pacific Bank Chart of the Month’

According to the credit ratings agency (CRA), Hong Kong accounts for US$798bn, with 34% of system assets in the territory exposed to China, which leaves its banks most vulnerable to a slowdown in China. It is followed by Macao (20%), Singapore (12%) and Taiwan (7%). Concentration for larger countries is low (Australia: 1.2%, Japan: 0.6%). In each of these markets, banks’ China-related exposure as a share of system assets has been rising since 2009.

For Hong Kong, claims on mainland banks are volatile, driven by Hong Kong’s leading role in the offshore renminbi (RMB) business, the rising interconnectedness of the two banking systems and their relative sizes. Lending and other activities with Chinese corporates, including trade finance, has developed more steadily at an average growth rate of 39% over 2010-2013 compared with 78% for bank claims.

The report is available at

Chinese Risk Limited for Most Banks Outside Asia

In a separate report, Fitch states that most banks outside Asia have a small direct exposure to China despite the recent growth, and so a slowdown in China would have only a limited direct risk for them. However, they may be vulnerable to any secondary effects from slower Chinese growth.

Banks’ exposure to China has been rising, the CRA notes. International banks’ direct exposures – loans and securities claims – on China almost doubled over the three years, to US$698bn at end-2013 in 24 countries reporting to the Bank of International Settlements (BIS) on an ultimate risk basis. Other claims, such as guarantees and derivatives, are not captured in this data.

China risk concentration is low for the largest countries outside of Asia. UK banks have the largest direct exposure, according to the most recent BIS data, at US$200bn, but this is only 1.6% of banking system assets.

Nevertheless, this is concentrated in two banks, HSBC and Standard Chartered, which have onshore activities. They operate the largest foreign subsidiaries in China despite having only very small market shares.

The BIS data is a starting point for Fitch’s analysis. The CRA had already estimated HSBC’s total China risk at US$148bn at end-2013, or about 1x Fitch Core Capital (FCC), and Standard Chartered’s at US$82bn or about 2x FCC. Most of this is cross-border and trade-related, with a significant share to state-sponsored entities, but the two banks’ onshore activities are significant and growing steadily.

US banks had US$83bn of direct claims on China, a very small 0.6% for the sector. US investment banks may also have other potential claims, including derivative contracts. But these would still be small relative to assets. Citigroup has a Chinese subsidiary, so is the most exposed of the US banks, but its total China exposure was US$32bn at end-2013.

Other countries with larger exposures to China also have manageable risk – with Japan at 0.6% of assets, France 0.4%, Germany 0.4% and Australia 1.2%. Australia’s exposure has grown the most rapidly, as trade has increased between the two countries and Australian banks have pushed their expansion in Asia. Lending is related largely to short-term trade finance. Overall exposure is relatively modest compared with the five largest banks’ FCC at 26%.


Related reading

New consumer banking head for Citi Asia Pacific