Banks' overseas assets growth won't affect creditworthiness

The phenomenal growth of Chinese banks' overseas assets won't affect their creditworthiness, Standard & Poor's said in a report released on July 31.

The ratings agency said the overseas assets of Chinese lenders have increased 176 percent in the last three years.

"Chinese banks have been steadily increasing their international presence despite abundant growth opportunities at home," said S&P credit analyst Ryan Tsang.

"While banks will benefit from greater geographic diversity, rapid overseas expansion could test their operation and risk management capacity. Nevertheless, we don't expect the expansion to affect banks' credit profiles."

Major Chinese banks' overseas activities are unlikely to significantly affect their ratings over the next two to three years because the banks are unlikely to expand their overseas operations through aggressive acquisitions, the report said.

Currently, the banks' overseas operations constitute well below 10 percent of their total assets, and offshore profit contributions represent an even smaller portion due to strong domestic profitability, it added.

The credit quality of Chinese banks' overseas exposure remains sound so far, with the non-performing loan ratio well below 1 percent as of the end of 2011, Tsang said.

"Customer deposits remain their main source of funding in offshore markets, particularly in Hong Kong. This provides the banks with some stability. Most importantly, the relatively small size of Chinese banks' overseas acquisitions indicates a cautious approach to expansion."

Major Chinese banks find expanding their overseas loan book a good way to optimize asset allocation and yield while the government reins in domestic credit growth. The rapidly increasing outbound presence of Chinese companies has also generated substantial demand for Chinese banks' offshore banking services, said the report.

And many global banks' retreat in lending markets while deleveraging amid the global financial crisis and the eurozone debt crisis has also provided growth opportunities for Chinese banks, it added.