Banking

Mitsubishi UFJ hopes to profit from China's lenders

By Monami Yui (China Daily)
Updated: 2010-09-10 10:27

A pedestrian walks past the Mitsubishi UFJ Financial Group headquarters in Tokyo on July 30. Japan's biggest bank has been buying mainland bank stocks listed in Hong Kong. Kimimasa Mayama / Bloomberg

Asset firm snaps up shares of mainland banks amid optimism on higher net interest margins

TOKYO - Mitsubishi UFJ Asset Management Co, a unit of Japan's biggest bank, has been buying mainland bank stocks listed in Hong Kong on optimism they will maintain higher net interest margins than their peers in the Asia-Pacific region's developed markets.

Profits at Industrial & Commercial Bank of China Ltd (ICBC) and China Construction Bank Corp will benefit in the six months to December from a high interest margin as the government will likely hold off from introducing further lending curbs to cool asset inflation, said Michiya Tomita, who oversees about $310 million in Chinese equities for the unit of Mitsubishi UFJ Financial Group.

Net interest margins, a measure of profitability, are calculated as a percentage of a bank's net interest income over its earning assets. Chinese lenders had an average net interest margin of 2.8 percent as of their latest filings, compared with 1.59 percent for banks in the Asia-Pacific region's developed markets, according to data compiled by Bloomberg.

"That the government hasn't announced any new tightening measures recently is evidence that it has already started relaxing its monetary policy," said Tomita in a Sept 8 interview in Hong Kong. "It will create more room for banks to lend and a high net interest margin signals second-half earnings will remain robust."

The Hang Seng China Enterprises Index of H shares of mainland companies has slumped 7 percent this year as the government introduced measures to curb property prices that ranged from a ban on some mortgages and higher down-payments on home sales.

Prices in mainland's 70 major cities climbed 10.3 percent in July from a year earlier, China Information News, the statistics bureau's newspaper, reported on Aug 10. The pace was the slowest in six months.

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China Construction Bank, the world's second-largest lender by market value, was the top holding of Mitsubishi UFJ's $310 million China Open Fund as of Sept 3, according to the firm's website. ICBC, the world's largest lender by market value, was the third-biggest holding, the website said.

China Construction Bank shares in Hong Kong have lost 1.2 percent this year, compared with the Hang Seng Index's 2.9 percent drop. The stock has risen 1.7 percent since the bank posted a 20 percent gain in second-quarter profit on Aug 22 as loan demand increased.

ICBC shares are down 9.5 percent in 2010. The stock has rebounded 4.3 percent since the lender posted a 38 percent gain in second-quarter profit on Aug 26.

"We're buying China's large-cap banks because we expect they will have a steady increase in share prices," said Tomita. "That will help Chinese shares rise."

Bloomberg News