In this episode of China Money Podcast, guest Michael Werner discusses Chinese banks' stocks; banks' exposure to local governments and the property sector; and whether Chinese banks will see their non-performing loan ratios skyrocket.

– There are still upsides for the Chinese banking stocks as they trade well below past levels
– Chinese banks' exposure to local governments and the property sector is manageable. NPL ratio will likely go up to only 2.5 percent
– Most listed Chinese banks have sustainable capital regimes and don't have to raise additional equity
– Chinese banks' should focus on wealth management, custody business and financial advisory to boost their fee-based revenue
– Fee-based revenue will keep growing at a 20 to 25 percent annual rate and will take up to 25 percent of banks' total revenue in five years
– China could begin to liberalize deposit interest rates in a year or two, but it will not hurt banks' profitability

"In general, I think Chinese banks are going to surprise people on how well they are provisioned and what the ultimate NPL ratio will be. Some people have been forecasting 8 to 12 percent (NPL ratio); that does not seem likely in our viewpoint."
– Michael Werner

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Our Guest Today:
Michael Werner is senior research analyst covering the Chinese and Hong Kong banks at Sanford Bernstein & Co. He has been with Bernstein for 12 years, previously covering U.S. banks, brokerages and European banks. Werner graduated from Brown University in 2000 with a BA in Economics and a BA in Mathematics.