Chinese banks -2018Outlook:Positioning in policy tightening and reforming

Another year of divergence among banks; still prefer retail-oriented banks.

    China has made containing financial risks a top priority. Financial deleveragingmay last longer than expected, with higher market rates and more coordinatedbut tighter regulations. This may lead to moderate credit growth but slowerleverage build-up and hence, less financial stability risk. On the banks’ assetside, we expect supply-side reform will be strictly followed and SOE reformmay accelerate, leading to improving corporate financial health. Thus, we staypositive on the Chinese bank sector. We expect wider divergence betweenretail banks (big-4/CMB/CRCB) and the rest, as funding strength remains thekey differentiating factor; upgrading CRCB to Buy