Moody’s cuts China banks outlook after sovereign downgrade

Moody’s Investors Service cut its outlook for eight Chinese banks to negative from stable, a day after unveiling a bearish stance on the nation’s sovereign bonds due to concerns over the level of debt.

The rating action for financial institutions including Industrial and Commercial Bank of China Ltd. and the China Development Bank was primarily driven by the change in outlook to negative from stable on the government’s credit ratings, according to a statement from Moody’s on Wednesday.

China has sought to defend its debt status, with the central bank boosting its support for the yuan a notch and state media running a series of articles citing experts who denounced Moody’s understanding of the economy.

Chinese markets found some support, with the CSI 300 Index snapping a three-day drop.

On Wednesday, Moody’s also cut its outlook on Hong Kong and Macau and placed 26 Chinese local government financing vehicles on review for downgrade.

The agency said there were signs of reduced autonomy of Hong Kong’s political and judiciary institutions after the implementation of a National Security Law.

The Hong Kong government said Moody’s made “unfounded comments” on the city’s autonomy and disagreed with the change to outlook, adding that Hong Kong’s deepening ties with China are a source of strength rather than a constraint, according to a statement late Wednesday.

The Chinese banks that Moody’s changed from negative to stable include three policy banks and five large state-owned commercial banks.

“Moody’s expects support provided to financially-stressed entities to be more selective, contributing to protracted risks of further strains for state-owned enterprise and regional and local governments,” according to the statement.