Home » Business » Biz Commentary
Investors go too bearish on new yuan credit supply
By Dorris Chen |
May 29, 2012, Tuesday
|
Print Edition
Print Edition
WE believe China's weak new loan figures in 2012 are not a full reflection of the actual credit supply to China's newly opened investment projects, which is the leading indicator for economic growth.
Many projects related with the investment boom in 2009 are completing construction and retiring from banks' loan books in 2012. This creates room for banks to lend to new local government projects without increasing total loans, and this is neglected in net new loan data.
We estimate there are 25 trillion yuan (US$3.96 trillion) of loans to mature for the system in 2012 or 15 trillion yuan for H-share listed banks. Assuming 15 percent of matured loans will retire, retired loans give banks 3.7 trillion additional lending capacity on top of the expected 8 trillion yuan in new loans in 2012, or 2.2 trillion for H-share listed banks.
The lending space created by retired loans is crucial because it balances banks' need to control exposure to local government projects with the pressure to grow against the weakening trend in credit demand.
Our communication with local governments and banks confirms that two years after the central governments' efforts to standardize the operation of local government funding platforms, new projects are starting to emerge around qualified LGFPs and banks are starting to support these projects by lending within the size of retired old loans, or use wealth management product account funds and lend off balance sheet via financial leasing contracts. Neither is captured by the new credit figure.
We reiterate our positive stand on China's cyclical sectors. Although the National Development and Reform Commission has been accelerating new project approvals as counter cyclical measures against a possibly worse-than-expected slowdown, the concern over sources of funding for these projects continues to hold market confidence down.
Our analysis indicates that the official credit and monetary numbers fail to fully capture the real new money supply to new projects; so investors have gone excessively bearish.
The new round of investment will certainly benefit our favored coal, machinery, and department store sectors. We maintain OVERWEIGHT on banks with Minsheng bank being our sector top BUY. Yet, we believe there are near term opportunities around banks falling below their book value.
Many projects related with the investment boom in 2009 are completing construction and retiring from banks' loan books in 2012. This creates room for banks to lend to new local government projects without increasing total loans, and this is neglected in net new loan data.
We estimate there are 25 trillion yuan (US$3.96 trillion) of loans to mature for the system in 2012 or 15 trillion yuan for H-share listed banks. Assuming 15 percent of matured loans will retire, retired loans give banks 3.7 trillion additional lending capacity on top of the expected 8 trillion yuan in new loans in 2012, or 2.2 trillion for H-share listed banks.
The lending space created by retired loans is crucial because it balances banks' need to control exposure to local government projects with the pressure to grow against the weakening trend in credit demand.
Our communication with local governments and banks confirms that two years after the central governments' efforts to standardize the operation of local government funding platforms, new projects are starting to emerge around qualified LGFPs and banks are starting to support these projects by lending within the size of retired old loans, or use wealth management product account funds and lend off balance sheet via financial leasing contracts. Neither is captured by the new credit figure.
We reiterate our positive stand on China's cyclical sectors. Although the National Development and Reform Commission has been accelerating new project approvals as counter cyclical measures against a possibly worse-than-expected slowdown, the concern over sources of funding for these projects continues to hold market confidence down.
Our analysis indicates that the official credit and monetary numbers fail to fully capture the real new money supply to new projects; so investors have gone excessively bearish.
The new round of investment will certainly benefit our favored coal, machinery, and department store sectors. We maintain OVERWEIGHT on banks with Minsheng bank being our sector top BUY. Yet, we believe there are near term opportunities around banks falling below their book value.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
