Moody's Investors Service says it continues to hold a stable to positive outlook for China's banking sector as its competitive and regulatory environment undergoes increasing change.

"Moody's earlier revised the deposit and senior bond ratings of 6 large banks to positive following similar action on China's sovereign rating and country deposit and bond ceilings," said May Yan, Moody's vice president and the author of the rating agency's latest annual outlook on the Chinese banking sector.

The six banks are China Development Bank, Export-Import Bank of China, Industrial and Commercial Bank of China, Bank of China, China Construction Bank and Agricultural Bank of China.

"The positive outlooks reflect the strong government support which Moody's expects for the policy banks and big banks. However, the degree of support accorded to other banks is likely to differ," she added.

However, the sector's recently improved financial situations have not been tested by any downturn, she said.

The new report, entitled "Reform and Transformation in an Increasingly Liberalized and Competitive Environment," covers a broad range of topics -- the economic and regulatory outlooks, government support, recent banking sector trends, reform, loan growth, profitability, performances by each banking sector, the role of foreign banks and new businesses.

The weighted average for Moody's universe of Chinese banks is A3 for foreign currency deposit and bond ratings, and E+ for bank financial strength ratings.

She said reform of the large banks is on track, while some shareholding banks have introduced strategic investors and are poised for overseas listings. Moreover, similar reforms have spread to city commercial banks, rural banks and credit coops, while reforms and regulatory initiatives to strengthen operations and lower systemic risk are apparent, she added.

On the closely watched WTO-mandated opening of the Chinese banking sector, the report says the impact will be gradual and will not cause an immediate system collapse. Foreign banks are likely to target high-end retail and multinational corporate in the more affluent coastal regions, and are unlikely to have any plans to replicate the broad network and clientele of the Chinese banks.

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