Goldman Sachs has picked Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and China Merchant Bank (CMB) for investment following the central government's announcement of a 4 trillion-yuan stimulus package to boost economic growth.

"We prefer ICBC, CMB and CCB among H-share and A-share banks under our coverage," the bank said in its statement.

The State Council announced on Sunday 10 measures with investment between the fourth quarter this year to 2010, totaling 4 trillion yuan to boost domestic investment and consumption to stabilize economic growth as export demand is weakening.

The central government's stimulus plan is expected to boost banks with domestic lending focus, strong customer franchise and big balance sheets to finance infrastructure projects. China Daily

Goldman Sachs thinks the economic measures will be positive for the mainland banks in terms of reducing macro headwinds and bank asset quality risks.

"We believe banks with domestic lending focus, strong customer franchise and big balance sheets to finance infrastructure projects will modestly benefit from these measures more than other banks," the bank said in its statement.

Analysts generally agree with Goldman Sachs' picks of mainland banks but they think it may take some time for banks and other industries to benefit from the government measures.

"The measures are quite comprehensive and it is clear that the mainland banks will benefit in terms of loosening lending. However, we need to wait and see about the details of measures," Patrick Shum, executive director at Karl Thomson said.

"In the face of economic downturn, banks are cautious in lending money to companies though mainland government encourages it. The measures will benefit the market in a short term but we may need to wait for a few years before we can see the economy becoming strong by these measures," Shum added.

"It is not difficult to see the mainland banks get direct benefits from these measures by the government. The benefits are solid," Kingston Lin, associate director of Prudential said.

"While shares of steel rose quite high yesterday, it remains uncertain as to whether the measures will benefit steel or infrastructure shares in the future," Lin added.

Among the three banks, CMB shares had the best performance yesterday. CMB closed at HK$14.58 after surging 14.26 percent or HK$1.82. CCB went up 7.69 percent or HK$0.31 to HK$4.34 while ICBC closed at HK$3.94, which was up 5.91 percent or HK$0.22.

Goldman Sachs, however, believes banks with relatively high loan exposure to export sectors may not directly benefit from these measures.

For example, Bank of Ningbo may still face more operating challenges and asset quality headwinds than other banks.

(HK Edition 11/11/2008 page3)