Banks to Lend More, But to Whom? 银行获准增加放贷但流向选择有限

By newsdoug on January 19, 2012

Beijing signals make banks schitzophrenic Chinese banks are fast becoming a group of financial contradictions, rushing to implement the latest government financial directives even when doing so makes little or no commercial sense, once again spotlighting the big risk that investors take by buying into these companies. The latest twist in China’s ongoing banking saga has central planners suddenly loosening their grip on the nation’s lenders, which were under strict orders last year to curb their new loans to help Beijing cool an overheated economy. But following a GDP report earlier this week that saw growth slip to a 2 year low of 8.9 percent in the fourth quarter, central planners are deciding that perhaps banks should lend a little more to make sure the economy doesn’t cool too much. Separate media reports are saying that Beijing has suddenly decided that top banks, including names like ICBC (HKEx: 1389; Shanghai: 601398) and China Construction Bank (HKEx: 939; Shanghai: 601939), can increase their lending by up to 5 percent this quarter (English article), and that the banking regulator may also loosen capital requirements. (English article) Both of these moves are clearly designed to pump more money into the economy to spur growth, much the way Beijing did at the height of the global financial crisis when traditional economic engines like exports and foreign investment dropped off sharply. The only problem this time is that while Beijing has given the green light for banks to lend more, it isn’t giving them very many options about where they can make those new loans. Two of the biggest traditional sources of new loans, real estate mortgages and government infrastructure, both remain off-limits for banks, as Beijing tries to cool the overpriced home market and worries about the potential for massive defaults on a huge jump in loans made to local governments for new infrastructure during the global slowdown. Lending to small and medium sized enterprises also looks unlikely to grow much soon, as corporate lending by the big banks typically goes to big state-owned enterprises. With all those lending channels closed or inaccessible, one of the few remaining outlets is the stock market, as another major source of loans is for individuals and companies that use the funds to bet on the stock market. So we could potentially see the stock market get a lift from this latest Beijing banking directive, though that kind of boost hardly seems healthy or natural, and could lead to even more problems in the form of more bad loans if the stock market rally is short-lived.

Bottom line: China’s banks are fast becoming schizophrenic lenders intent on implementing Beijing’s latest directives, leading them to policies that make little or no commercial sense.

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