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Lenders have no mood for loan push on capital limits
By Stanley Li and Patrick Pong |
June 11, 2012, Monday
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Print Edition
Print Edition
WE held an investor tour to meet major banks, an insurer and regulators in Beijing late last month. We feel banks are not keen to join a new round of large-scale credit stimulus yet. Capital and liquidity remain the biggest constraints to lending capacity.
Banks generally expect to maintain stable loan supply. Loan demand is weakening but it still exceeds supply. But banks have to work harder to address the mismatch by allocating more resources to new growth areas such as small- and medium-sized enterprises and service sectors.
The largest banks guide for 12-13 percent lending growth for 2012, lower than 15 percent growth for the sectors under 8 trillion yuan (US$1.27 trillion) new credit target.
Window guidance based on capital and liquidity levels remains in place. The upcoming Basel III rules will have a neutral to moderately negative impact on banks' capital position. Banks are concerned that aggressive credit expansion would result in more capital raising pressure.
Changing the 75 percent loan-to-deposit rule is difficult too. Banks are cautious against new lending to local government financing vehicles and real estate developers.
On top of that, the China Banking Regulatory Commission has recently added steel, metals and mining to the list of high credit-risk sectors. Managements do not expect near-term easing in property curb measures, although they agree that the government is unlikely to introduce more tightening measures.
Some of the banks saw improvement in net interest margins in April mainly due to lower interbank funding costs. We believe re-pricing of long-term loans may have helped as well. But banks expect a flattish loan pricing trend going forward as loan demand continues to weaken.
We believe the risk is to the downside because: 1) the share of lower-yield discount bills has increased in the loan book; 2) the latest rate cut would mean more margin pressure. On the funding side, the deposit base has become increasingly short-term and volatile. Slower foreign exchange inflow has further slowed corporate deposit growth. Asset quality seems stable but banks may keep building up provision buffers to prepare for any downturn.
Banks generally expect to maintain stable loan supply. Loan demand is weakening but it still exceeds supply. But banks have to work harder to address the mismatch by allocating more resources to new growth areas such as small- and medium-sized enterprises and service sectors.
The largest banks guide for 12-13 percent lending growth for 2012, lower than 15 percent growth for the sectors under 8 trillion yuan (US$1.27 trillion) new credit target.
Window guidance based on capital and liquidity levels remains in place. The upcoming Basel III rules will have a neutral to moderately negative impact on banks' capital position. Banks are concerned that aggressive credit expansion would result in more capital raising pressure.
Changing the 75 percent loan-to-deposit rule is difficult too. Banks are cautious against new lending to local government financing vehicles and real estate developers.
On top of that, the China Banking Regulatory Commission has recently added steel, metals and mining to the list of high credit-risk sectors. Managements do not expect near-term easing in property curb measures, although they agree that the government is unlikely to introduce more tightening measures.
Some of the banks saw improvement in net interest margins in April mainly due to lower interbank funding costs. We believe re-pricing of long-term loans may have helped as well. But banks expect a flattish loan pricing trend going forward as loan demand continues to weaken.
We believe the risk is to the downside because: 1) the share of lower-yield discount bills has increased in the loan book; 2) the latest rate cut would mean more margin pressure. On the funding side, the deposit base has become increasingly short-term and volatile. Slower foreign exchange inflow has further slowed corporate deposit growth. Asset quality seems stable but banks may keep building up provision buffers to prepare for any downturn.
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