China Weakness No Match For World's Largest Bank

Mar 30 2014, 12:58pm CDT | by

China Weakness No Match For World's Largest Bank
Photo Credit: Forbes Business

China’s economy may be slipping, but tell that to the world’s largest bank, which also just happens to be Chinese.

Profits might not be growing as much as they were a year or two ago, but that’s stating the obvious. The bears will point that out, as it makes more dramatic television and better reading on the op-ed pages. The good news here is that non-performing loans are below the national average.

Over the weekend, the trillion dollar Industrial and Commercial Bank of China reported a 10.2% increase in 2013 profits to $42.3 billion. The Wall Street Journal yawned at the numbers. What was most interesting in the numbers was the data on non-performing loans.  ICBC recently watched one of its trust fund products default on more than $400 million, requiring a government bail out after a bad investment in a municipal coal producer.  The bank has not been the source of good news. Nor has the entire financial sector in China.  Still, despite problems in the real estate markets, non-performing loans as a portion of the bank’s real estate portfolio was just 0.72%.

Overall, ICBC’s non-performing loans ratio was 0.94% , up just 0.09 percentage points from the previous year.  China’s non-performing loan data comes from the government, which basically runs the entire financial sector in the country. Many naysayers believe that the data is inaccurate, arguing that Beijing is not going to make its banks look bad. If China’s data is correct, then non performing loans in China’s banking system is below that of the United States and the world average, according to the World Bank.

“China’s financial sector is going through a tough patch, but we don’t think it is a problem in the near or medium term for the economy,” Allan Conway, Head of Emerging Markets Research at Schroders told FORBES in New York last week.

China’s financial sector, led by the People’s Bank of China (PBoC), has been made more aware of the shaky ground on which it walks. Last summer, money market rates skyrocketed to double digits due to local fears of a pending crisis at municipal lenders.  The PBoC has pledged support of those smaller, provincial banks, but it comes with a price.  The central bankers are supposedly carefully watching the loan portfolios at government lenders.

ICBC, the world’s largest bank by market cap, cut lending in risky sectors facing overcapacity, like solar, auto and real estate. Last year, ICBC’s outstanding loans to local governments, real estate developers and industry declined by 94.3 billion yuan, 8.6 billion yuan and 19.9 billion yuan, respectively, the bank said on Friday.

ICBC is closely tied to China’s real estate market, too. In their personal loan segment, mortgage lending accounts for 55.6% of the bank’s lending. Mortgage lending rose 12.7% in 2012, the most recent year for compiled data.  That same year, ICBC wrote-off 214 loans to commercial developers valued at 9.4 billion yuan ($1.5 billion), up from 144 write-offs worth 6.4 billion. Commercial real estate trailed wholesale/retail lending and manufacturing loans, the worst hit of them all, in the impairment category for ICBC in 2012, according to the bank’s Annual Report.  Commercial real estate lending accounts for 8.3% of the bank’s corporate lending.

On balance, China’s average real estate price is in line with historic norms. But when major eastern seaboard cities are thrown into the mix — especially Shanghai and Hong Kong — China’s housing market looks to be bubbling over.  And while China’s real estate bubble is different from the leverage induced bubble in the U.S. that led to the 2008 foreclosure crisis and economic turmoil, the market has been treating real estate as one of two linchpins threatening to derail China.

According to government data reported on Sunday by Xinhua newswire, China’s residential real estate market is showing signs of cooling down, with some new housing projects cutting prices. Cuts were reported in the cities of Beijing, Hangzhou and Shenzhen, where property sales have been strong for years. A new real estate project in suburban Beijing priced its apartments lower than the market estimate by 12% or about 3,000 yuan ($490.2) per square meter to 21,000 yuan in mid-March.

Since 1998 when housing reform began in China, the sector has become more market-oriented, with rapid growth in residence investment and new supply coming on line in cities with high demand, like Shanghai and Hong Kong.  Low interest rates in the country, and a very volatile casino-like securities market, keep middle class and richer Chinese in the housing market, too. Investment in urban properties rose from 431.1 billion yuan in 1998 to 5.9 trillion yuan in 2013, with annual growth of 19%, according to Wind Information Co.

ICBC remains a victim of both housing and a developing credit crisis.  The bank’s  H-shares are down 6.71% year-to-date ending March 28, underperforming the MSCI China Index by around 300 basis points.

See: Prepare For Pop Of China Property Bubble – China Daily

China’s Biggest Banks Post Slower Growth – WSJ

China Developers Face End Of Easy Money – Bloomberg

World's Largest Debtor Governments, 2013

Source: Forbes Business

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Brazilian institute seeks US help for anti-Ebola serum
Sao Paulo, Nov 20 (IANS/EFE) A Brazilian research centre is in talks with the US National Institutes of Health (NIH) to develop a serum to combat the deadly Ebola virus.
 
 
China vows to boost capacity to explore polar regions
Beijing, Nov 20 (IANS) China has vowed to strengthen its capacity to undertake polar region expeditions, following President Xi Jinping's visit to a Chinese icebreaker in Australia.
 
 
Hyundai to build train factory in Brazil
Brasilia, Nov 19 (IANS/EFE) A subsidiary of South Korea's Hyundai announced Wednesday it will invest 100 million reais ($38 million) to build a train factory in the southern Brazilian state of Sao Paulo.
 
 
Cuban doctor infected with Ebola in Sierra Leone
Havana, Nov 19 (IANS) A Cuban doctor fighting the Ebola epidemic in Sierra Leone has been infected with the disease, Cuba's health ministry said Wednesday.
 
 
 

Latest from the Network

Lady Gaga shares underarm tattoo video
Los Angeles, Nov 20 (IANS) Pop star Lady Gaga took to photo-sharing website Instagram to share a video of herself getting 17th tattoo on her armpit. The 28-year-old singer's tattoo, on her left side, is a tribute to...
Read more on Celebrity Balla
 
French fighter jets in Jordan to back offensive against IS
Paris, Nov 20 (IANS) France has decided to deploy six Mirage fighter jets in Jordan to back missions against the Islamic State (IS) terrorists in Iraq. "There were nine Rafale (jets) in the UAE and they will be...
Read more on Politics Balla
 
Brazilian institute seeks US help for anti-Ebola serum
Sao Paulo, Nov 20 (IANS/EFE) A Brazilian research centre is in talks with the US National Institutes of Health (NIH) to develop a serum to combat the deadly Ebola virus. Butanta Institute, an entity linked to the Sao...
Read more on Business Balla
 
Taylor Swift mends friendship with Harry Styles
Taylor Swift and Harry Styles are repairing their friendship. The 'Blank Space' hitmaker and the One Direction heartthrob split in early 2013 after four months of dating, but are now back on friendly terms and in...
Read more on Celebrity Balla
 
Kris Jenner has fallen hard for Corey Gamble
Kris Jenner has fallen head-over-heels in love with Corey Gamble. The 59-year-old reality TV star, who split from Bruce Jenner in October 2013 after 23 years of marriage, started dating Justin Bieber's 33-year-old road...
Read more on Celebrity Balla
 
FKA twigs says Robert Pattinson is 'worth it'
FKA twigs is willing to put up with online abuse for dating Robert Pattinson because he's ''very worth it.'' The 'Two Weeks' hitmaker, who started dating the 'Twilight Saga' star in September, admits the constant...
Read more on Celebrity Balla
 
Angelina Jolie admits it's not easy directing Brad Pitt
Angelina Jolie admits ''it's not easy'' directing herself and Brad Pitt in 'By the Sea'. The 39-year-old star is currently shooting the film, which tells the story of a married couple's complicated relationship, in Gozo...
Read more on Celebrity Balla
 
Tom Hardy to star in 'Taboo'
Los Angeles, Nov 20 (IANS) Actor Tom Hardy is set to star in a new historical drama"Taboo". Cable television channel Fx network will be producing the new series. Set in 1813, it is based on an adventurer called James...
Read more on Celebrity Balla
 
Former Kazakhstan PM Akhmetov put under house arrest
Astana, Nov 20 (IANS) Former prime minister of Kazakhstan Serik Akhmetov has been charged with corruption and placed under house arrest on the orders of a court. This was revealed Wednesday by the press service of...
Read more on Politics Balla
 
China vows to boost capacity to explore polar regions
Beijing, Nov 20 (IANS) China has vowed to strengthen its capacity to undertake polar region expeditions, following President Xi Jinping's visit to a Chinese icebreaker in Australia. Xi boarded the icebreaker called...
Read more on Business Balla