The current reporting season is uncovering some uncomfortable truths across China's Banking landscape.
Whether it be Minsheng, Shengjing, Ping An, Chongqing, or CZB, etc, the System is embroiled in a feedback loop of soaring funding costs, elevated credit growth, and rapidly eroding credit quality. The latter is not visible via the NPL ratio but elsewhere on the Balance Sheet via overdue loans, impaired loans, NPL losses, restructured loans, write-offs, and other statement lines. LLPs may be low or flat as LLRs rise. In many cases, there seems to be a strategy of diminishing returns with flat or negative Income matched by heated Asset growth as banks endeavour to grow themselves out of trouble. In some cases, fee income is down on the crackdown relating to WMPs.
Tighter liquidity conditions are not necessarily visible via the LDR given the accounting of the numerator.
Of course, the market has been grappling with some or most of these risks for awhile now - above all the Shadow Banking WMP matter.
But Balance Sheet complexities are getting harder to read, intimating that P&Ls may flatter to deceive.
This is not to say that opportunities do not exist as valuations are low.
And you wouldn't want to bet against the government that seems fully aware that things need to change.