## figure1-26

## Source details

**Canonical URL:** [figure1-26](https://www.imf.org/-/media/files/publications/gfsr/2019/april/english/ch1data/charts/figure1-26.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/gfsr/2019/april/english/ch1data/charts/figure1-26.pdf.md)
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### Overview
- Title/theme: China: Bank Balance Sheet Weaknesses
- Main messages:
  - Banks’ ability to extend loans to the corporate sector is limited by low profitability.
  - Banks have weak capital levels.
  - Banks outside the Big 5 face a trade-off between improving resilience or extending new credit.
  - Higher credit growth will come at a cost of delaying bank balance sheet repair.

### Balance sheet strengthening assumptions (exact)
- Balance sheet strengthening assumes banks maintain common equity Tier 1 (CET1) ratios equivalent to higher of current ratio or the industry average (10.5 percent).
- Except in the green bars of panel 3, banks must hold adequate capital against 50 percent of on-balance-sheet shadow credit and 30 percent of off-balance-sheet shadow credit (wealth management products).
- Bank internal capital generation is increased by a 50 percent reduction in the dividend payout ratio.
- Data are based on a sample of Big 5 banks and 25 small and medium-sized banks representing RMB 160 trillion in assets.
- RMB = renminbi.

### Panel summaries and exact figures shown in figure labels
- Panel 1: Return on Assets (Percent)
  - Values shown: 8, 9, 10, 11, 12 for series covering years 2014 15 16 17 18 and 2014 15 16 17 18:Q1 (as presented).
  - Separate series for Big 5 and Small and medium-sized banks.
- Panel 2: Core Tier 1 Capital Ratio (Percent)
  - No additional numeric breakdown provided in the source text beyond panel label.
- Panel 3: Estimated Aggregate One-Year Loan Growth Capacity with Balance Sheet Strengthening, by Bank Type (Percent)
  - Annual loan growth assumption (percent) axis marks include: 5 10.
  - Panel includes a distinction for green bars where the shadow-credit capital requirement exception applies.
- Panel 4: Small and Medium-Sized Banks: Share on Track to Strengthen Balance Sheets, by Time Required and Credit Growth Pace (Percent of small and medium bank assets)
  - Horizontal/vertical axis tick labels shown: –40, –30, –20, –10, 0, 10, 20, 30, 40, 60, 80, 100 (as presented).

### Key implications (as given)
- Maintaining or raising CET1 to the higher of current ratios or the industry average (10.5 percent) is a central condition for balance sheet strengthening.
- Recognizing and holding capital against a portion of shadow credit (50 percent on-balance-sheet; 30 percent off-balance-sheet) materially affects banks’ one-year loan growth capacity.
- Increasing internal capital generation via a 50 percent reduction in dividend payout supports balance sheet repair.
- Small and medium-sized banks face timing and credit-growth trade-offs when choosing between balance sheet repair and extending new credit.

*Sources: Haver Analytics; SNL Financial; and IMF staff estimates.*

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_Source: https://www.imf.org/-/media/files/publications/gfsr/2019/april/english/ch1data/charts/figure1-26.pdf_