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Improved risk controls lessen chance of new NPL surge

(Xinhua)
Updated: 2009-03-11 08:42

Smaller companies, western borrowers

Besides large projects and companies, a big slice of the new loans also went to smaller firms and less developed interior regions, which badly needed financing as they struggled with the impact of the global recession.

Several banks have announced lending efforts specifically aimed at such borrowers. For example, BOC has said it would extend 200 billion yuan in loans to central China's Henan Province for public transportation and infrastructure projects over the next five years.

Bank of Communications said it would lend 60 billion yuan to Shaanxi Province for infrastructure and projects to boost the manufacturing sector and improve living standards.

"Although the overall development level of China's middle and western regions falls behind the more prosperous eastern and coastal areas, the investment and economic growth rates in the middle and western areas were higher than the national averages in recent years, suggesting bigger growth momentum," Tang said.

Though banks were still cautious about loans to the private sector and small and medium-sized enterprises (SMEs), the national infrastructure projects would eventually benefit all sectors, including SMEs, said Lian Ping, chief economist of the Bank of Communications.

Tang also forecast the government this year would announce policies to encourage banks to lend to SMEs, whose access to finance has long been limited.

Almost 52 percent of corporate loans in 2008 went to SMEs, with the amount by value up 13.5 percent year-on-year, said Zhou Xiaochuan, the PBOC governor, during the legislative session last week.

Tang Zhenning, an official with ICBC's executive office, told Xinhua that the bank's lending to smaller companies focused on manufacturers with good credit records, and the loans had done much to help these SMEs get through the crisis and avoid job cuts.

Banking shares gain

Chinese banking shares outperformed the Shanghai index in late February and early March, even as the stocks of their US and European peers were plunging. Some representative shares of banks in China, the United States and Europe show the diverging performances of sectors in each area.

For example, the shares of China Construction Bank and Bank of China, the second- and third-largest banks in China, have risen about 1.5 percent and 5.9 percent to 4.22 yuan and 3.58 yuan, respectively, in the past week.

Meanwhile, in the United States, Citibank's shares slid 14.2 percent to $1.03 during the same period, and Wells Fargo Bank's shares dropped 20.57 percent to $8.61.

Shares in Deutsche Bank AG, Germany's biggest bank, fell 4.38 percent to 18.79 euros (about $14.80).

Tang said that the recent surge of domestic banks' loans and increasing income from this business had buoyed investor confidence in their shares.

Of the five publicly listed Chinese commercial banks that have already released preliminary results for 2008, all estimated that net profit rose at least 30 percent over the 2007 level. Three banks - Bank of Beijing, China Citic Bank and Bank of Nanjing - estimated that annual net profit rose 60 percent to 70 percent.

Ou Minggang, director of the International Finance Research Center of China Foreign Affairs University, noted that interest rates had been cut five times last year, with bigger cuts to lending rates than deposit rates. Ou said these asymmetrical cuts had squeezed banks' profit margins, while the recent surge in loans might involve potential risks.

But he said banks had improved their risk control to reflect these pressures, with the goal of maintaining profitability.

 

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