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China’s January Surge in Lending Probably Exceeded Fourth Quarter’s Total

by on February 8, 2010

By Bloomberg News Feb. 9 (Bloomberg) — China’s banks probably made more new loans in January than the previous three months combined as lenders sought to head off a credit clampdown by policy makers seeking to stem rising inflation pressures. New bank lending totaled 1.38 trillion yuan ($201 billion) last month, according to the median estimate of 16 economists in a Bloomberg News survey ahead of a government report scheduled for this week. Separate figures are projected to show consumer prices rose the most since 2008 and export gains accelerated. Regulators are seeking to slow a credit boom loosed last year that may now be inflating a bubble in China’s property market. The week’s economic reports are likely to reinforce expectations for the central bank to start raising interest rates and loosen controls on the yuan in coming months, moves that might trigger similar steps across the region. “Central banks are looking at China’s policy moves,” said Brian Jackson , an emerging-market strategist at Royal Bank of Canada in Hong Kong who previously worked at the Federal Reserve Bank of New York and Bank of England. “More aggressive policy tightening from China, including interest-rate increases and yuan appreciation, will make it easier for the rest of the region to move as well.” Year-on-year percent changes in some of China’s January economic data may have been distorted by the lunar new year holiday, which was in January last year but February in 2010. Most businesses close for the week-long celebration. Inflation Quickens At the same time, trends show accelerating price pressures across the economy poised to become world’s second biggest this year, behind the U.S. Aluminum Corp. of China Ltd. , the nation’s top producer of the metal, on Jan. 4 raised alumina prices for the third time in five months. Beijing Yanjing Brewery Co. Jan. 15 raised prices for some of its beer about 10 percent, citing rising costs of fuel and rice. “Inflation fears are beginning to take over from China’s growth euphoria as both consumer and producer inflation continue to climb,” said Kevin Lai , an economist at Daiwa Institute of Research in Hong Kong. “The central bank must tighten policies more aggressively,” said Lai, who expects the People’s Bank of China to start lifting its benchmark rate as soon as this month. Consumer prices probably advanced 2.1 percent in January from a year before, a third straight gain, the median estimate shows. Producer price inflation probably quickened to 3.5 percent, according to the survey . Growth of the M2 money supply measure probably slowed for a second month to 25.9 percent, the median projection shows. Regional Response Inflation is also accelerating from South Korea to Vietnam as commodity and food prices rise amid the Asia-led global recovery. Still, South Korea, India, Indonesia, Thailand, Malaysia, Taiwan and the Philippines have yet to raise rates and policy makers in countries including Thailand and Taiwan are restraining currency gains, traders say. In China, authorities have kept the yuan at about 6.83 per dollar since July 2008 to help exporters after letting it appreciate about 21 percent the previous three years. China may allow the yuan to begin appreciate this quarter, which may make its Asian neighbors more comfortable in allowing their currencies to advance, said RBC’s Jackson. Any need to restrain the yuan may be easing. Exports probably jumped 28 percent last month from a year earlier, and imports probably surged 85 percent, leaving a trade surplus of $20 billion, Bloomberg surveys show. Growth Quickens Economic growth accelerated to a 10.7 percent year-on-year pace last quarter, the fastest since 2007, responding to an unprecedented 9.59 trillion yuan of credit extended by banks in 2009 and a 4 trillion yuan two-year fiscal stimulus plan. The estimate for new lending in January is 48 percent more than the total extended in the last three months of 2009. It’s also 18 percent of the 7.5 trillion yuan Premier Wen Jiabao’s government set as the target for this year. Property prices in 70 major cities climbed 7.8 percent in December, the most in 18 months, responding in part to the record credit surge. “There are literally trillions and trillions of renminbi of, frankly, defaulting loans already in China,” Neil McDonald , a business restructuring and insolvency partner in Hong Kong with law-firm Lovells LLP, said at conference last week, using another term for the yuan. “At some point there’s going to be a reckoning for that.” The Shanghai Composite Index has slumped 10 percent since the year began on concern the government will curb lending to cool the economy. The central bank asked lenders to set aside more money as reserves on Jan. 12, the first such increase since June 2008. Some lenders have since been asked to limit credit, punished by even higher reserve ratios. Bank of China Ltd. , the nation’s third-largest lender by market value, on Feb. 3 reduced discounts for some mortgages, citing concern about rising property-market risks. Industrial & Commercial Bank of China Ltd. , the world’s largest bank by market value, said Jan. 27 it “stabilized” loan growth after lending rose “relatively fast” in the first half of the month. — Li Yanping . Editors: Chris Anstey , Cherian Thomas To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

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China’s January Surge in Lending Probably Exceeded Fourth Quarter’s Total

Video: HSBC CEO Geoghegan Discusses China Growth Strategy: Video

by on January 31, 2010

Feb. 1 (Bloomberg) — HSBC Holdings Plc Chief Executive Officer Michael Geoghegan talks with Bloomberg’s Bernard Lo about the bank’s growth strategy in China. HSBC is said to want a 51 percent stake in one of China’s three biggest banks, which include Industrial and Commercial Bank of China Ltd., Bank of China Ltd. and China Construction Bank Corp., The Sunday Telegraph reported. (This is an excerpt of the full interview. Source: Bloomberg)

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Video: HSBC CEO Geoghegan Discusses China Growth Strategy: Video

China Pledges `Reasonable’ Financing, Urges Scrutiny of Real Estate Loans

January 27, 2010

By Bloomberg News Jan. 28 (Bloomberg) — China’s banking regulator told lenders to step up scrutiny of property loans while pledging to satisfy “reasonable” financing needs as it seeks to control credit growth and prevent asset bubbles. Banks should “strictly” follow real estate lending policies, the China Banking Regulatory Commission said yesterday in a statement on its Web site after a quarterly assessment of the nation’s economic and financial situation. It repeated a call for banks to “reasonably control” lending growth. China’s stocks fell for a fourth day on concern efforts to rein in lending will slow the world’s fastest-growing major economy. Chinese banks advanced a record 9.59 trillion yuan ($1.4 trillion) of new loans last year, helping spur an 80 percent increase in the Shanghai Composite Index and driving property prices to their biggest gain in 18 months in December. “The key this year is the timing and pace of lending,” said Sheng Nan , a Shanghai-based analyst at UOB Kayhian Investment Co. “The risk from not lending enough is even bigger” than lending too fast because projects started last year will need continued funding support, he said. The Shanghai Composite slid 1.1 percent to 2,986.61, dropping below 3,000 for the first time since October. Industrial & Commercial Bank of China Ltd. led the decline, dropping 1.8 percent to 4.90 yuan. January Surge Chinese banks, including Bank of China Ltd. and China Construction Bank Corp., have begun restricting new loans, responding to a push by regulators to contain credit after a surge in lending in the first half of this month, people familiar with the situation said yesterday. “I don’t see a slowdown in lending as a bad thing,” investor Mark Mobius , who oversees about $34 billion in emerging markets funds as chairman of Templeton Asset Management Ltd., said in an interview at a conference in Sydney yesterday. “It moderates risk to some degree because people don’t go overboard.” Beijing-based ICBC, the world’s largest bank by market value, said yesterday that loan growth has “stabilized” after growing at a relatively fast pace in the first half of January. The bank said it will focus on financing existing government projects. ICBC said it “won’t rush” and will “pace its lending,” according to yesterday’s statement. Speculative Flows The Wall Street Journal reported earlier that ICBC ordered branches in Beijing to stop issuing new loans until the end of the month. Banks across the country have suspended new lending since Jan. 19, Dong Tao , a Hong Kong-based economist at Credit Suisse Group AG, wrote in a note to clients yesterday. Liu Mingkang , chairman of the banking regulator, said in an opinion piece earlier this month that bank loans had been channeled into stock and property markets, and the regulator “stepped in to stop that.” China tightened rules on loans for homes, automobiles, fixed-asset investments and working capital to limit speculative flows. Global equities tumbled last week on concern China will raise borrowing costs after the economy grew 10.7 percent in the fourth quarter, the fastest pace since 2007, and inflation accelerated to 1.9 percent in December. The Shanghai gauge has lost 9 percent this year. The People’s Bank of China raised the proportion of deposits that banks must set aside as reserves starting Jan. 18. The banking regulator reiterated that banks should pace their lending every quarter, according to yesterday’s statement. The regulator has capped new lending at 7.5 trillion yuan for 2010. — Luo Jun , Zhang Dingmin , Li Yanping . Editor: Chitra Somayaji , Matthew Brooker To contact the reporter on this story: Yanping Li in Beijing at yli16@bloomberg.net

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China One-Year Yields Rise for First Time Since August as Credit Tightens

January 11, 2010

By Bloomberg News Jan. 12 (Bloomberg) — The People’s Bank of China sold one- year bills at a yield of 1.84 percent in the open-market operations, rising the first time since August, according to traders at Industrial & Commercial Bank of China Ltd. and BOC International Holdings Ltd. To contact the reporter on this story: Belinda Cao in Beijing at lcao4@bloomberg.net

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Chinese Central Bank Guides Bill Yields Higher in a `Signal of Tightening’

January 7, 2010

By Bloomberg News Jan. 7 (Bloomberg) — China’s central bank sold three-month bills at a higher interest rate for the first time in 19 weeks after saying its focus for 2010 is controlling the record expansion in lending and curbing price increases. Stocks fell across Asia and oil declined on concern growth will slow in China, the engine of the world economy’s recovery from its worst recession since World War II. The People’s Bank of China offered 60 billion yuan ($8.8 billion) of bills at a yield of 1.3684 percent, four basis points higher than at last week’s sale, according to a statement . “It’s definitely a signal that the central bank is tightening liquidity,” said Jiang Chao , a fixed-income analyst in Shanghai at Guotai Junan Securities Co., the nation’s largest brokerage by revenue. “The rising yield is used to prevent excessive growth in bank lending.” Premier Wen Jiabao said on Dec. 27 that last year’s doubling in new loans had caused property prices to rise “too quickly,” while surging commodity costs were increasing inflationary pressure. Guiding market rates higher may be a prelude to raising reserve requirements or benchmark interest rates, said Shi Lei , a Beijing-based analyst at Bank of China Ltd., the nation’s third-largest lender. The MSCI Asia Pacific Index of regional stocks fell 0.5 percent and oil for February delivery slid 0.7 percent after 10 days of gains. Copper for three-month delivery dropped 0.7 percent. The Shanghai Composite Index fell 1.9 percent, led by Bank of China Ltd. and Industrial & Commercial Bank of China Ltd. Tightening in Asia “We expect some tightening of monetary policy in Asia in the first half,” said Norman Villamin , Singapore-based head of investment analysis for Asia Pacific at Citigroup Private Bank. “Markets will struggle to go higher.” Australia’s central bank raised borrowing costs by a quarter percentage point on Dec. 1 to 3.75 percent after similar moves in November and October. The Bank of Korea, which meets tomorrow, will probably raise its benchmark rate one percentage point to 3 percent by end-2010, according to a Bloomberg survey of economists. By contrast, the Federal Reserve target rate is close to zero and policy makers last month discussed increasing asset purchases should the economy weaken. Policy makers will seek “moderate” loan growth while managing inflation expectations, the People’s Bank said yesterday in a report on its annual work meeting. The government has told lenders to pace lending, while tightening mortgage rules for second-home purchases. Liu Mingkang , the top banking regulator, wrote in an opinion piece in Bloomberg News this week that “structural bubbles threaten to emerge” in the economy. Bill Sales Guotai Junan’s Jiang said the yield on benchmark one-year bills will climb in open-market operations next week. The central bank resumed sales of those bills on July 9 after an eight-month suspension to help drain cash from banks. The central bank is set to withdraw 137 billion yuan from the financial market this week, the biggest since the week ended on Oct. 23, according to data compiled by Bloomberg News. China’s one-year interest-rate swap , the cost of receiving a floating rate for 12 months, rose 10.5 basis points to 2.24 percent. A basis point is 0.01 percentage point. The central bank kept the benchmark one-year lending rate at a five-year low of 5.31 percent last year after five reductions in the last four months of 2008. It may rise to 5.85 by the end of 2010, according to a Bloomberg News survey of 29 economists in November. Lending Boom “There’s no doubt that lending has been excessive and that explains why policy makers are starting to be more cautious about lending this year,” said Qu Hongbin , chief China economist for HSBC Holdings Plc in Hong Kong. Qu estimates new loans will be limited to 7 trillion yuan in 2010. Banks extended an unprecedented 9.21 trillion yuan of loans in the first 11 months of 2009, compared with 4.15 trillion yuan a year earlier. The People’s Bank said it would curb volatility in lending and monitor the property market, while reaffirming a “moderately loose” monetary policy. The statement contrasted with the start of 2009, when the central bank targeted “appropriate” increases in lending and said monetary policy would play “a more active role in promoting economic growth.” Consumer prices climbed 0.6 percent in November from a year earlier, snapping a nine-month run of declines. The central bank is on alert for inflation after economic growth accelerated to 8.9 percent in the third quarter of 2009, the fastest in a year. Property Prices Housing Minister Jiang Weixin said yesterday that the nation will limit credit for some home purchases to reduce property-market speculation. Prices across 70 cities rose at the fastest pace in 16 months in November, gaining 5.7 percent from a year earlier, led by Shenzhen, Wenzhou and Jinhua. The central bank didn’t state a 2010 target for growth in M2, the broad measure of money supply , after overshooting a 17 percent goal last year. The actual rate was more than 25 percent for most of 2009, rising to a record 29.7 percent in November. “Growth will probably slow this year as tight credit will dampen the demand side,” said Zhang Ling , who helps oversee about $7.21 billion at ICBC Credit Suisse Asset Management Co. in Beijing. “That will dash investors’ hopes of another year of fast growth.” — Zhang Dingmin , Luo Jun , Sophie Leung , Judy Chen . Editors: Paul Panckhurst , James Regan To contact Bloomberg News staff for this story: Dingmin Zhang in Beijing at +86-10-6649-7576 or dzhang14@bloomberg.net Jun Luo in Shanghai at +86-21-6104-7021 or jluo6@bloomberg.net

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Chinese Lenders Said to Submit Capital Raising Plans to Banking Regulator

November 24, 2009

By Bloomberg News Nov. 24 (Bloomberg) — China’s five largest banks submitted preliminary plans for raising capital to the industry regulator after they extended unprecedented amounts of new loans this year, according to four people with knowledge of the matter. The China Banking Regulatory Commission evaluated the finances of Industrial & Commercial Bank of China Ltd. , China Construction Bank Corp., Bank of China Ltd., Agricultural Bank of China and Bank of Communications Ltd. last week, the people said, declining to be identified. Lenders were told to estimate potential capital shortfalls in 2010 based on their own lending forecasts and capital ratio targets for the year, and to make plans to plug the deficits, they said. The five banks extended a record 4.7 trillion yuan ($688 billion) of loans in the first nine months, even as lenders worldwide reined in credit to repair balance sheets. Bank of China said today it’s studying “various options” to replenish capital after doling out more new loans than any other Chinese lender. The company’s shares fell in Hong Kong trading. “With China’s pace of credit growth, banks’ capital will be drained very quickly and that leaves little room for cushioning if asset quality worsens,” said Sheng Nan , a Shanghai-based analyst at UOB-Kayhian Investment Co. The CBRC said yesterday that lenders must formulate longer- term fundraising plans and those with “relatively low” capital adequacy ratios and without a “practical” plan will face four restrictions on their operations, including limits on market entry, outbound investment, new branches and “business expansion.” Credit Boom China’s government encouraged a $1.3 trillion credit boom this year to complement its monetary and fiscal stimulus plans, propelling the economy to the fastest growth in a year last quarter. The nation’s 11 largest publicly traded banks may need to raise about 300 billion yuan by selling shares and bonds to ensure they have adequate capital for continued loan growth, BNP Paribas SA said in a report last week. The fundraising plans submitted by banks are informal and may change, the people said. Spokespeople at China Construction Bank and Bank of Communications declined to comment and those at Agricultural Bank of China and ICBC weren’t immediately available for comment. Chinese lenders would need as much as a combined 368 billion yuan to keep their capital adequacy ratios at 12 percent, according to BNP Paribas. Bank of China , the nation’s third- largest by market value, would require 137 billion yuan, BNP estimated. Capital Ratios Bank of China shares fell as much as 4 percent in Hong Kong and traded at HK$4.64, a drop of 3.5 percent, as of 2:41 p.m. local time, the biggest drop since Sept. 24. The CBRC late yesterday denied telling “large” banks to raise their capital adequacy ratios. The regulator’s statement came after Reuters reported it urged big state-owned lenders to boost their ratios to 13 percent next year, citing a person it didn’t identify. The regulator last year raised the minimum required capital adequacy ratio, or capital as a percentage of risk-weighted assets, for publicly traded banks to 10 percent from 8 percent. It said in September it plans to tighten capital requirements for banks by capping cross-holdings of subordinated bonds. ICBC, the world’s largest bank by market value, had a capital adequacy ratio of 12.6 percent as of Sept. 30, while Construction Bank was at 12.11 percent. Bank of China’s capital adequacy ratio stood at 11.63 percent and Bank of Communications stood at 12.52 percent. Their Tier 1 ratios were all above 9 percent except for Bank of Communications. The credit expansion helped housing prices post their biggest gains in more than a year and aided an 78 percent surge in the Shanghai Composite Index of stocks. China may need to rein in credit growth to tame inflationary pressures and keep asset bubbles from emerging as growth accelerates, the Organization for Economic Cooperation and Development said this week. Banks may issue 7 trillion yuan of new loans in 2010, BNP Paribas estimated. For Related News and Information: Top financial stories: FTOP Stories on China Banks: TNI CHINA BNK Banking industry debt and equity monitor: BANK Relative value comparison: 3988 HK RVC

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China Construction Bank Posts Second Straight Profit Gain on Record Loans

October 24, 2009

By Bloomberg News Oct. 24 (Bloomberg) — China Construction Bank Corp. , the world’s second-largest lender by market value, posted a second straight gain in quarterly profit on record lending and fewer provisions for defaults and subprime loan-related investments. Third-quarter net income climbed to 30.3 billion yuan ($4.4 billion), or 0.13 yuan a share, from 25.6 billion yuan, or 0.11 yuan, a year earlier, the Beijing-based company said in a statement to Hong Kong’s stock exchange yesterday. That beat the 29.8 billion yuan average estimate of six analysts surveyed by Bloomberg. Construction Bank, led by Chairman Guo Shuqing , rose to a 17-month high in Hong Kong yesterday as investors shrugged off concerns that record lending might cause bad debts to soar. China’s economy grew 8.9 percent in the quarter from a year earlier, the government said yesterday, making it the fastest pace in a year. “The worst is over for Chinese banks and their earnings will improve quarter by quarter along with the economic growth,” Cheng Jiaoyi , an analyst at Qilu Securities Co. in Shanghai, said in an interview. “We expect China Construction Bank to post a 15 percent gain in profit next year as it stands to benefit the most from the recovery among the big banks.” Shares of Construction Bank advanced 1.7 percent to HK$7.05 before the announcement, the highest since May 2008. The stock is up 66 percent this year, giving the lender a market value of $213 billion, trailing only Chinese rival Industrial & Commercial Bank of China Ltd. Construction Bank extended 879.6 billion yuan of new loans in the first nine months, up 23.8 percent from the beginning of the year. Non-performing loans accounted for 1.57 percent of the total as of Sept. 30, narrowing from 1.71 percent three months earlier. Chinese banks advanced a record $1.27 trillion of new credit in the first nine months of the year, an increase of about 150 percent from a year earlier, prompting the nation’s banking regulator to warn of rising risks. Guo said in August that excess cash in the banking system had led to “bubbles” in capital markets. The lender aims to keep new credit in the second half to 200 billion yuan, President Zhang Jianguo said in an August interview. China’s cabinet said this week it will continue with monetary and fiscal stimulus measures even after the economy exceeded expectations. The State Council also signaled that inflation concerns will be an increasing focus in policymaking as the rebound strengthens. Earnings Visibility Chinese banks “offer probably the clearest earnings visibility” for 2010 among major industries, JPMorgan & Co. analysts led by Samuel Chen wrote in an Oct. 11 report. They forecast 32 percent average earnings growth for Chinese lenders next year. Net interest income, or revenue from borrowers minus interest paid to depositors, dropped 7 percent to 53.1 billion yuan from 57.1 billion yuan a year earlier. Net interest margin, a measure of loan profitability, narrowed to 2.41 percent from 3.3 percent a year earlier, according to yesterday’s statement. Construction Bank’s net fees and commissions from issuing credit cards, custodian services and mutual fund sales rose 31 percent to 12.3 billion yuan. The lender set aside 3.47 billion yuan in provisions against potential losses on loans and U.S. subprime-debt related investments during the quarter, down 56 percent from a year earlier. Construction Bank, established in 1954 to fund roads, bridges, dams and other infrastructure, was China’s largest mortgage and real-estate lender until the first half of last year, when Industrial & Commercial Bank of China Ltd. pushed it to second place. China’s property sales jumped 73 percent in the first nine months of 2009 from a year earlier to 2.75 trillion yuan. — Luo Jun . Editors: Joost Akkermans , Philip Lagerkranser To contact Bloomberg News staff of this story: Luo Jun in Shanghai at +8621-6104-7021 or jluo6@bloomberg.net

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Wynn Macau Shares Climb in Hong Kong Trading Debut After $1.63 Billion IPO

October 8, 2009

By Chia-Peck Wong Oct. 9 (Bloomberg) — Wynn Macau Ltd., the casino company led by billionaire Stephen Wynn , rose as much as 13 percent in early trading in its Hong Kong debut after raising $1.63 billion in the city’s second-largest initial public offering of the year. The stock rose to as much as HK$11.40 and traded at HK$11.10 as of 10:02 a.m. local time. Wynn Macau sold shares at HK$10.08 apiece, which was at the top of its price range. Wynn, 67, sold the stake in his assets in Macau, the world’s biggest gambling hub, as he grapples with falling revenue at Wynn Resorts Ltd. ’s Las Vegas operations. Before today, 34 companies listed in Hong Kong this year — 24 of which rose in subsequent trading while 10 dropped, according to Bloomberg data. Metallurgical Corporation of China Ltd. fell 12 percent on its first day of trading in Hong Kong on Sept. 24. The builder raised HK$18.2 billion in the city’s biggest initial public offering for 18 months. JPMorgan Chase & Co., Morgan Stanley and UBS AG managed Wynn Macau’s share sale. To contact the reporter on this story: Chia-Peck Wong in Hong Kong at cpwong@bloomberg.net ;

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China Central Bank to Keep `Moderately Loose’ Policy Stance, Official Says

July 29, 2009

By Ye Xie July 29 (Bloomberg) — China’s central bank said it will maintain a “moderately loose monetary policy” and aims to consolidate the nation’s economic recovery. “To continue to foster the relatively smooth and fast economic development is the top priority,” the People’s Bank of China said in a statement on its Web site that cited recent remarks by Su Ning , a deputy governor, in Shanghai. The Web site posting came hours after the biggest tumble in a benchmark Chinese stock index in eight months. The comments echo those of Chinese officials who met with U.S

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China’s Stocks Gain; Sichuan Expressway Almost Triples in First-Day Trade

July 26, 2009

By Bloomberg News July 27 (Bloomberg) — China’s stocks advanced, extending the Shanghai Composite Index’s biggest weekly gain in six weeks, as Sichuan Expressway Co. more than doubled on its debut trade. Sichuan Expressway, a toll-road operator, jumped 118 percent from its offer price in Shanghai’s first initial public offering since regulators lifted a nine-month moratorium on IPOs in June.

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