China hits back at Fitch, saying banks sound

China's banking system is sound, including the two banks downgraded by Fitch Ratings this month, a senior central bank official said in comments published on Monday.                                           

Xuan Changneng, the head of Financial Stability Bureau with the People's Bank of China, told the official Financial News that Chinese banks were doing better than international lenders in terms of capital adequacy and asset quality.                                           

Fitch Ratings on Feb 2 downgraded the individual ratings of China Merchants Bank and China CITIC Bank to D from CD, citing the two banks' deterioration in capital and rising credit risk in the wake of rapid loan growth.                                           

"We hope that rating agencies like Fitch Ratings can make a fair evaluation of Chinese financial institutions based upon objective standards," Xuan told the paper run by the central bank.                                           

"I don't think the downgrading will affect the pace of China's financial reform and opening up," Xuan added. "The downgrading by Fitch Ratings on the two banks has no obvious market impacts, and it will not affect our regulation and support to the two banks."                                           

He said China Merchants and China CITIC were in healthy condition with capital base being in line with China's regulatory requirement.                                           

It was not the first time for the central bank to dispute findings by international agencies.                                           

In May 2006, China's central bank issued a strongly worded statement to denounce a report by Ernst & Young, an auditing firm, regarding the size of non-performing loans in China's banking system.                                           

Ernst & Young withdrew the report and apologized four days after the central bank statement.