Although Chinese city commercial banks have grown rapidly in the past decade, increasing their importance in the country's financial system, they are contributing to higher systemic risks, U.S. ratings agency Fitch said in a report on Monday.
"Their rising systemic importance implies any excessive risk building up in this sector could lead to higher overall systemic risk," the report noted.
Asset structures of these banks have been shifting toward non-loan financial products to enhance yield, and this shift has been coupled with their thinning liquidity and weak capital buffers, according to the report.
"The banks are increasingly exposed to spillover and contagion risks, while access to timely liquidity support is also less certain," it said.
Fitch said that local governments can help these banks but their ability to do so varies and may be restricted by limited financial capacity.
