Chinese banks feel the heat as stress test unveils capital pressure.

January 12, 2024
1 min read


  • The latest stress test conducted on Chinese banks has revealed persistent capital pressure across the sector.
  • The stress test, published in the People’s Bank of China’s 2023 Financial Stability Report, shows that the average capital adequacy ratio of the country’s 19 systemically important banks would drop to 14.5% by the end of 2025 from 16.3% at the end of 2022.

The stress test results highlight concerns about the ability of Chinese banks to absorb losses in the event of a mild economic downturn. Relevant credit growth in China is considered unlikely as it could further undermine the banks’ loss absorption capacity.

The stress test also revealed that some banks in China are more vulnerable to asset quality deterioration than others, and there is a need for stronger capital buffers to mitigate risks.

The stress test results suggest that Chinese banks may face challenges in maintaining adequate capital levels to support lending activities and absorb potential losses. This could impact their ability to support economic growth and contribute to financial stability in China.

In response to the stress test results, the People’s Bank of China has urged banks to strengthen their capital positions, enhance risk management practices, and improve provisions for potential loan losses.

The stress test results come amid ongoing concerns about China’s banking sector, including high levels of non-performing loans and potential risks associated with shadow banking activities. The Chinese government has taken steps to address these issues, including implementing stricter regulations and guidelines for banks.

However, the stress test results suggest that more needs to be done to ensure the stability and resilience of China’s banking system. It is crucial for Chinese banks to strengthen their capital positions and improve risk management practices to address the capital pressure highlighted in the stress test.

Overall, the stress test results highlight the importance of maintaining adequate capital levels in the banking system to support economic growth and financial stability. The Chinese government and regulatory authorities need to work closely with banks to address the capital pressure and ensure the stability and resilience of the banking sector in China.

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