Improved balance sheets and economic growth have helped bump up the credit ratings of 10 mainland commercial banks from a year ago, a report said yesterday.

"We analyzed the performance of 16 banks over the past year and we're positive about their credit status, especially given the improving fundamentals," said Li Li, general manager of financial institution ratings at China Chengxin International Credit Rating Co, which put out the report.

Compared with five banks that were rated AAA last August, seven got the top rating this year, with China Merchants Bank and China CITIC Bank Corp Ltd upgraded from AA+ and AA respectively.

Higher risk resistance and profitability as well as improved asset quality and capital adequacy ratios helped to lift the banks' ratings.

"The banks' profit growth will slow in the foreseeable future, but growth momentum will continue. Based on bank forecasts, as long as GDP growth stays above 8 percent, asset quality won't be affected too much," Li said.

The government's monetary tightening policy is likely to remain in place this year, but Li expects it will be relaxed in 2009. Li said that although there are likely to be more non-performing assets this year, Chinese banks are in a strong position to weather the economic storm.

But the report warned of negative factors that could hamper growth in the banking industry.

Of the 16 banks analyzed by China Chengxin, non-interest revenue accounted for just 9.5 percent of total revenue on average, indicating the banks are reliant on interest rate spread and that intermediary businesses have not developed well.

The report also pointed to the fixed interest rate system, which it said has weakened pricing ability.

The State-owned banks are all rated AAA and that status won't change unless the government changes their shareholding structures, the report said.

Meanwhile, the shareholding commercial banks and city commercial banks had an average rating of AA and AA-.

(China Daily September 3, 2008)