S&P issues warning on Chinese banks

Standard & Poor’s (part of McGraw Hill, MHP.NYSE) said that a tighter monetary policy would squeeze profits at China’s banks, the Wall Street Journal reported. “Inflation and a possible economic slowdown stemming from tightening measures could lead to a spike in credit losses over the next two to three years,” the report said. “Chinese banks’ profitability could slip in the remainder of 2011 and drop further in the next two years.” The report added that the country’s largest banks would likely fare better than smaller banks, due to higher capital buffers. The warning comes amid a flurry of recent downward revisions on China’s broader economy by the likes of Goldman Sachs (GS.NYSE) and the Organization for Economic Cooperation and Development (OECD).