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Mainland banks benefit from 7.5 trillion lending target
By Leo Zhang |
August 30, 2010, Monday
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Online Edition
Online Edition
FIRST-HALF net profit of 16 Chinese public lenders accounted for 46 percent of the total earned by 1,829 mainland-listed firms, reflecting a booming banking industry that benefited from sustained credit growth.
But analysts cautioned yesterday that banks would face challenges in the second half as China tightened liquidity, took further steps to cool the property market and cleared up local-government financing vehicles.
Sixteen mainland-listed banks posted a combined net income of 343.4 billion yuan (US$50.6 billion) in the January-June period, up more than 30 percent from a year before, according to their separate earnings reports.
The Big Four state-owned lenders -- Industrial & Commercial Bank of China, Bank of China, China Construction Bank, and Agricultural Bank of China -- grossed 256 billion yuan in earnings, up 28.8 percent year on year.
"Banks have performed well in both interest and non-interest-based businesses as profit margins have bottomed out," said Liu Yu, an Orient Securities Co trader. "Growth may ease in the coming months as liquidity goes tighter."
The central government is targeting 7.5 trillion yuan in new credit for 2010 after banks made a record 9.6 trillion yuan worth of fresh loans last year, nearly double the volume in 2008.
Chinese banks extended 4.63 trillion yuan in new loans in the first half of this year, among which 1.38 trillion yuan was channeled into the real estate sector, according to the People's Bank of China.
Apart from concerns about real-estate loans, Chinese financial authorities are also cleaning up irregular local government financing vehicles to prevent a wide spread of bad loans.
Funding vehicles of Chinese local governments had borrowed 7.66 trillion yuan by the end of June. China's banking regulator said this month that "the overall risk is manageable and will not lead to systemic risk."
"Property-market adjustment and checks on local financing platforms will cause uncertainties and dampen investors' enthusiasm in the short term," said Wu Yonggang, an analyst with Guotai Jun'an Securities Co. "But the current low valuation has already reflected such pessimism, making it relatively safe to buy into the banks."
Shares of mainland-listed banks dipped about 5 percent in the past month, compared with a nearly 1 percent decrease on the Shanghai Composite Index as investors grew jittery about their fundamentals and fund-raising schemes.
The market is also speculating that the central government would step up efforts to cool the nation's real estate sector in the second half, which could potentially increase banks' sour debt.
China's banking regulator conducted a second round of stress tests on lenders this month, requiring them to gauge the influence on their balance sheets if property prices drop by up to 60 percent.
Despite the blistering earnings growth, banks including ICBC, CCB and BOC have announced plans to raise more than 230 billion yuan of new capital to meet capital adequacy requirement for further expansion.
"Raising new funds is beneficial to banks' long-term business growth," said Lu Weitao, a Guosen Securities Co trader. "However, it will undoubtedly cast pressure on the market and thus limit possible gains of banking shares."
But analysts cautioned yesterday that banks would face challenges in the second half as China tightened liquidity, took further steps to cool the property market and cleared up local-government financing vehicles.
Sixteen mainland-listed banks posted a combined net income of 343.4 billion yuan (US$50.6 billion) in the January-June period, up more than 30 percent from a year before, according to their separate earnings reports.
The Big Four state-owned lenders -- Industrial & Commercial Bank of China, Bank of China, China Construction Bank, and Agricultural Bank of China -- grossed 256 billion yuan in earnings, up 28.8 percent year on year.
"Banks have performed well in both interest and non-interest-based businesses as profit margins have bottomed out," said Liu Yu, an Orient Securities Co trader. "Growth may ease in the coming months as liquidity goes tighter."
The central government is targeting 7.5 trillion yuan in new credit for 2010 after banks made a record 9.6 trillion yuan worth of fresh loans last year, nearly double the volume in 2008.
Chinese banks extended 4.63 trillion yuan in new loans in the first half of this year, among which 1.38 trillion yuan was channeled into the real estate sector, according to the People's Bank of China.
Apart from concerns about real-estate loans, Chinese financial authorities are also cleaning up irregular local government financing vehicles to prevent a wide spread of bad loans.
Funding vehicles of Chinese local governments had borrowed 7.66 trillion yuan by the end of June. China's banking regulator said this month that "the overall risk is manageable and will not lead to systemic risk."
"Property-market adjustment and checks on local financing platforms will cause uncertainties and dampen investors' enthusiasm in the short term," said Wu Yonggang, an analyst with Guotai Jun'an Securities Co. "But the current low valuation has already reflected such pessimism, making it relatively safe to buy into the banks."
Shares of mainland-listed banks dipped about 5 percent in the past month, compared with a nearly 1 percent decrease on the Shanghai Composite Index as investors grew jittery about their fundamentals and fund-raising schemes.
The market is also speculating that the central government would step up efforts to cool the nation's real estate sector in the second half, which could potentially increase banks' sour debt.
China's banking regulator conducted a second round of stress tests on lenders this month, requiring them to gauge the influence on their balance sheets if property prices drop by up to 60 percent.
Despite the blistering earnings growth, banks including ICBC, CCB and BOC have announced plans to raise more than 230 billion yuan of new capital to meet capital adequacy requirement for further expansion.
"Raising new funds is beneficial to banks' long-term business growth," said Lu Weitao, a Guosen Securities Co trader. "However, it will undoubtedly cast pressure on the market and thus limit possible gains of banking shares."
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