Beijing, Jul 27 (IANS): Credit rating agency Moody's on Thursday revised its outlook for the Chinese banking system from negative to stable.

The revision follows Moody's assessment of five drivers: Operating Environment (stable); Asset Quality and Capital (stable/stable); Funding and Liquidity (deteriorating); Profitability and Efficiency (deteriorating); and Systemic Support (stable), Yulia Wan, a Moody's Assistant Vice President and Analyst, said in a statement.

"The stable outlook is also based on our assessment that the government's adoption of more coordinated policy measures to curb shadow banking will help mitigate asset risks for banks, and address some key imbalances in the financial system," Wan added.

The statement added the revision reflects expectations that "non-performing loan formation rates will be relatively stable at current levels", reports Efe news.

This is Moody's first review of the Chinese banking system since 2015, when it had warned that growing weaknesses as reflected in public companies and weaker asset profiles were a result of the country's economic slowdown.

The statement said the quality of bank assets "had deteriorated more rapidly during 2015 and also in the first half of 2016".

Moody's hopes that asset risks will moderate over the next 12-18 months, while capitalization will stay stable.

The agency also expects the Chinese government to remain a key shareholder in major banks and continue to be committed to providing strong support to banks in times of stress, while its support for smaller banks might be more selective, "following the introduction of deposit insurance scheme in May 2015".

Moody's had already upgraded the banking outlook in the Asia-Pacific region from negative to stable earlier in the month, noting that banks in China, Hong Kong, Singapore, Australia, New Zealand and Mongolia were primarily responsible for the increase in stable outlooks.