Friday, February 12, 2010

Chinese Banks Bank Credit Going into the Real Economy

 •Jan loan growth in-line — The PBOC announced Jan new lending of Rmb1.39tn,
in line with market expectations. This is 14% lower than the Rmb1.62tn of new
lending in Jan 2009, and accounts for 18.5% of the government's Rmb7.5tn
lending target for 2010. Strong growth in consumer loans and medium/long-term
loans, plus continued contraction in discounted bills, suggest that bank credit is
going into the real economy, unlike a year ago. We continue to see good earnings
visibility and inexpensive valuations, but near-term catalysts are lacking. Top
picks: CCB, BOC and CMB. We are positive on Chinese banks versus regional

Strong consumer lending — Consumer lending was very strong, growing
Rmb450bn in Jan (of which 76% seems to be mortgages), which is the largest
single monthly increase in the four years that our data stretches back for. This is
compared to the average monthly growth of Rmb233bn in 2H09, which was a very
active period for property transactions.

•Discounted bills still down — Discounted bills continued to contract, down
Rmb181bn in Jan, which is similar to the average run-rate of Rmb208bn
contraction per month in 2H09. This shift out of discounted bills should be
positive to NIMs, but this process should be close to an end as levels of
outstanding discounted bills among the banks is returning to more normal levels.

•Surge in medium/long-term loans — Medium/long-term loans grew Rmb752bn in
Jan, which is similar to the peak monthly growth achieved in 2009 (in March and
June), and suggests that funding for government projects is being drawn down.

•Small rise in LDR — Deposits grew Rmb1.51tn, primarily driven by corporate
deposits, while retail deposits contributed to just 16% of the increase. The system
Rmb loan/deposit ratio increased 0.6% mom to 67.5%.

Simon Ho [morgan stanley]

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