China's Unsettling Lending Bonanza

ft.com/alphaville All times are London time

News

Spot the odd one out in a Fitch survey on Thursday of emerging bank sectors (click to enlarge):

Yep. China and its lending boom — which authorities are now racing to rein in.

As Fitch’s analysts write (emphasis ours):

Loan growth in China in 2009 far outpaced that in other EMs, and by year"end Chinese banking assets exceeded those of the other 23 systems covered in this report, combined. Although Chinese loan growth is likely to slow in 2010, such a rapid expansion gives rise to significant asset quality concerns in the medium term, in Fitch's view. Globally, loans/GDP ratios look high in China, Taiwan, Latvia, Estonia and Ukraine relative to sovereign rating levels, while penetration is moderate in Mexico, Peru, Indonesia and Colombia.

Well, well — being mentioned in the same breath as the blown-up banking systems of the Baltic. That’s a slightly rum deal.

Something else of interest in Fitch’s data — this chart shows that retail lending plays little role in Chinese banks’ overall loans (click to enlarge):

This offers a bit of perspective on the drivers of the property boom in Chinese cities, suggesting that consumer credit or mortgage lending are unlikely to be strong factors.

But, er, where is all that loan growth coming from, then? Here’s another enlightening chart — on state ownership of banks. Again, China is near the top (click to enlarge):

And note that Fitch believe they may be understating matters. Quite. For example, the reach of China’s Local Government Funding Vehicles may go well beyond the five big state-owned banks. Municipalities seem to use the vehicles to borrow from banks for infrastructure projects — which, coupled with uncertainty over how transactions are being reported, is something to watch.

This is especially true amid the earnings season for private Chinese banks, such as China Construction Bank on Thursday. As Caing notes, these lenders are straining to meet government liquidity tightening via stronger capital requirements.

Oh dear. It would be most unfortunate to have banking problems in this part of the world, just as Europe teeters on the brink.

Related links: Pulling the plug on China’s banks. Literally. – FT Alphaville China’s urban canaries – WSJ Heard on the Street Fundraising reports unsettle China’s banks - FT

This entry was posted by Joseph Cotterill on Thursday, April 29th, 2010 at 16:32 and is filed under Capital markets. Tagged with china, Chinese banks, emerging banks, emerging markets, fitch. Edit this entry.

WP Cumulus Flash tag cloud by Roy Tanck and Luke Morton requires Flash Player 9 or better.

Or select a previous briefing:

© The financial Times Ltd 2010 FT and 'Financial Times' are trademarks of The Financial Times Ltd.