Improved operating environment boosts China’s securities sector
Fitch Ratings has raised our assessment of the operating environment (OE) for China’s securities sector to ‘bbb-’/stable, from ‘bb’/stable, reflecting the progress of financial reforms to curb systemic risk, the country’s relatively stable economy and better business prospects amid the deepening of capital markets.
The improvement factors in regulators’ increased focus on compliance and risk control standards and their imposition of comprehensive regulatory risk limits to control securities firms’ absolute level of market and credit risk.
China’s extended macroeconomic stability relative to peers, even during the pandemic shock of 2020, highlights the resilience of its economy and provides support to the OE score. We forecast economic growth to return to moderately strong trend levels in 2022.
We believe there will be increased business opportunities for securities firms’ investment banking operations as Chinese regulators prioritise direct financing, especially equity financing, as part of policies to contain financial risk and ease the corporate debt burden.
Further upward revision in our OE assessment would require ongoing improvement in the transparency, predictability and effectiveness of regulation. Other considerations include better market liquidity and funding options, and sustained improvement in the level and structure of credit within China’s financial system.
The Issuer Default Ratings (IDR) of our rated Chinese securities companies are all support-driven, which means the improved OE assessment will not trigger IDR changes.
However, our assessment of the companies’ standalone credit profiles will be boosted by the change. Chinese securities firms with leading franchises, more seasoned risk control frameworks and sector-leading financial strength will increasingly have standalone credit profiles assessed in the ‘bbb’ range under the improved OE. These characteristics should support their capacity to take advantage of the emerging business opportunities.