Foreign banks in China face growth challenges in 2023: Fitch

Their share of system assets in 2021 is just 1.4%, with only a 0.5% growth.

Foreign banks are expected to hit growth snags challenges in China over the next few years, with the country’s economy likely to remain subdued through 2023, according to a report by Fitch Ratings.

The ratings agency noted that foreign banks’ market share fell to just 1.4% of total system assets by the end 2021, growing only 0.5% in 2021. At its peak in 2007, foreign banks has a 2.3% market share in China.

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“We believe the reported financial metrics of these FBs have not fully captured group benefits as well as revenue generated under China subsidiaries. However, Fitch-rated FBs' ratings remain driven by our expectation of shareholder support, as we expect the majority of FBs will continue to play key strategic and integral roles in supporting their parents' expansion in China,” Fitch noted in its media comment, “Fitch Ratings: Foreign Banks' Prospects in China Remain Clouded.”

Fitch expects continued asset-quality headwinds for foreign banks in 2023, given the property sector stress and pandemic restrictions. 

“That said, deterioration in onshore exposure should be moderate for most FBs, as their loan exposure tended to be in higher-income regions, and most banks increased provisions in 2022,” the ratings agency added.