Report Summary
Growth Continues Unabated, But Key Problems Remain China's economy is showing no convincing signs of slowing, with real GDP growth accelerating to 11.1% y-o-y in Q107, after easing to 10.4% y-o-y in Q406. BMI is forecasting the economy to grow by 10.5% this year and 10.4% in 2008, although we see upside risks to these projections. Excess liquidity, generated by China's vast trade surplus and large inflows of FDI, remains a key problem, and continues to fuel rapid investment growth. Indeed, the continued strength of China's economic data emphasises the ineffectiveness of the authorities' cooling measures to date. We expect further policy measures to come in H207, including an increase in the one-year lending rate to 6.84% by year-end. This will be accompanied by further hikes in commercial banks' reserve requirements, along with tougher administrative curbs on 'wasteful' investment.
The Commercial Banking Sector At the end of 2006, total assets, loans and deposits amounted to US$5,627bn, US$3,051bn and US$4,456bn, respectively. By all three measures, China is home to the fourth-largest banking sector globally, behind only the US, the eurozone and Japan. In local-currency terms, asset growth was 17.3% over the preceding year. By this measure, China was the 28th-ranked country of the 59 for which we have compiled information this quarter. Loan growth was a tame 15.2%: by this measure, China was the 39thlargest country in our survey.
Deposit growth was marginally higher than loan growth, at 15.9%: by this measure, China was the 33rdlargest country in our survey. Deposits per capita currently amount to around US$3,366. As at December 31 2006, the loan/deposit, loan/asset and loan/GDP ratios were 69%, 54% and 117%, respectively and over the preceding year, only the latter ratio has been increasing modestly. Most strikingly, China's banks experienced a very large growth in deposits. Considered in light of falling loan/deposit and loan/asset ratios, we infer that banks must be struggling to find sufficient numbers of borrowers to recycle the money to in the form of loans - resulting in this excess of deposits. The upside of this is that there is potential for the banks to sell other financial services products, such as insurance, to their customers.
China's banks appear, collectively, to hold bonds worth US$685.9bn. It seems that, in 2006, the Chinese banks' collective holdings of bonds increased, in US dollar terms, by 23.4%. The banks' bond portfolios appear to be small as a portion of total assets, however, amounting to about 12% of total assets. This suggests that banks do not see the government as a particularly attractive credit risk at present.
Press Reports Recent reports in the Chinese and international press reflect two broad issues. The first is that investors both within and outside China remain bullish about the banking sector. The large rise experienced in bank stocks has exemplified a broad turnaround in China's stock markets, an extended rally that has gained international notice. The bull market for bank shares reflects investor optimism about China's overall economy and about improvements in the health of the country's financial system.
However, the second broad issue covered in recent press reports is the potential risks to this bullish sentiment. Analysts point to the potential for the economy to overheat and there is a general agreement that the People's Bank of China will raise interest rates in response. Reports comment that the central bank is likely to raise rates for the second time this year and only the fifth time in a decade. Concerns have mounted since the government recently declared that GDP expanded by a stronger-than-
Contents
Executive Summary
Key Issues
Changes To This Quarter's Commercial Banking Forecast
Chinese Commercial Banking SWOT
Latest Developments - Q307
The Commercial Banking Sector
Press Reports
International Context
Lending Trends And External Accounts
Total Assets, Loans And Deposits
Year-On-Year Growth Rates
Per-Capita Deposits
Macroeconomic Trends And Developments
Economics: BMI Core Scenario
Politics: BMI Core Scenario
Business Environment:
Economic Activity
Industry Forecast Scenario
Comment On The Past
Comment On Forecasts
Comment On Trends
Banks' Bond Portfolios
Competitive Landscape
Market Protagonists
“China Commercial Banking Report Q3 2007” is available from Report Buyer. For more information go to: http://www.reportbuyer.com/
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