Chinese Banks - Record Lending in March With Better Mix

Record lending in March, improved mix – The PBOC announced on 11 April that new Rmb lending in March reached a record Rmb1.89trn, in line with recent media reports, and trumping January's Rmb1.62trn. Lending mix improved in March, with discounted bills falling to 20% of new loans (vs. 40% Jan/Feb), and medium/long-term loans rising to 42% of new loans (vs. 33% Jan/Feb). YTD growth in loan outstanding was a rapid 15.2%. Excluding discounted bills, YTD growth in regular loans was 10.9%. The lending surge in late March partly reflects banks' locking-in loan volumes for fear of potential credit tightening measures.
State banks grew faster in March – State-owned banks outgrew the system in March, with mom loan growth of 6.8%, vs. 6.0% mom growth for the joint-stock banks. We believe this reflects the stronger loan demand for infrastructure/ government projects, which the state banks are in a stronger position to capture.

Negative deposit mix shift – Time deposits in 1Q09 grew 15.8% qoq, faster than the growth in demand deposits +10.2% qoq. This was driven primarily by corporate time deposits, which increased 22.7% qoq.

Key is future loan growth – Whilst severe tightening is unlikely (PBOC has reaffirmed its loose stance following release of these figures), loan growth in April / 2Q09 should inevitably slowdown. If new lending falls from the Rmb4.58trn level in 1Q09 to Rmb1trn per quarter for the rest of the year (run-rate in 2Q/3Q08), system loan growth would end up at Rmb7.6trn in 2009, or 25% growth in loans outstanding.

Credit multiplier soaring to ~3.5x – With loan growth potentially in the 25% range this year, and nominal GDP growth slowing to ~7%, China's credit multiplier (loan growth/nom GDP growth) will surge to ~3.5x from sub-1x level in the last 3-4 years. Whilst NPL formation is unlikely to be significant near term given the ease of credit availability, medium-term NPL risks are building, in our view.  Sector stance – After the recent rally, potential price upside looks increasingly limited. Strong loan growth in 1Q09 is mainly being used to offset NIM pressure. We maintain our Buy rating on BOC and our Hold (2M) rating on ICBC. CMB remains our top Sell.

Sponsored Links