Chinese banks are being urged to slow lending and tighten monetary policy to cool the country’s overheated economy.
Regulators want banks to cut the levy on lending, diversify profitability and reduce risks by increasing new products and services, the Shanghai Daily reports
Investors have swarmed to Chinese banks, which reported a profit increase of 68.7 percent and a combined pre-tax profit growth of $9.32 billion.
Growth has been largely driven by sales of lending and personal wealth management products.
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Meanwhile, China’s red-hot economy grew by a staggering 11.4 percent last year, its biggest growth spurt in 13 years, and its booming stock market gave banks a platform to sell financial products, including investments in overseas capital markets.
The central bank now wants Shanghai lenders to increase non-loan business and non-interest rate income and cap their lending scale. Yet the monetary authority also wants banks to continue lending to small and medium-sized businesses and firms engaged in environmental protection.
About 70 percent of Chinese banks' income currently originates from lending. Comparatively, foreign banks earn about 50 percent of their revenue from loans.
"It’s not that we are doing well, it's just that our rivals overseas are doing badly,” Industrial and Commercial Bank of China Chairman Jiang Jianqing says.
"Being the world's largest bank by market value is not our goal. We want to become the most profitable,” he says.
It looks like that may already be happening.
For the first time, China’s banks are the biggest in the word, with a market cap that leaves Citigroup far behind. The country’s three largest banks — ICBC, China Construction Bank and Bank of China — are valued at $608 billion.
Industry analysts consider this reversal the clearest sign yet that shareholders are betting on banks in the emerging markets, instead of investing in U.S. banks that dominated world banking for most of the past century.
China Construction Bank, the country's second-largest bank, will stop new lending to industries including mining and retail this year, a bank official told Reuters. The bank’s 2007 bad loan ratio was 2.95 percent, the lowest of the country’s four state-owned banks.
CBC is halting lending to the mining, wholesale, retail, catering and hospitality sectors — in which bad loan ratios exceeded 10 percent — and restricting loans to the construction and manufacturing sectors, which have a bad loan ratio of between five and 10 percent.
Chinese banks are also setting aside funds to cover losses in the subprime market, the collapse of which reduced the value of the three biggest U.S. banks by almost $100 billion during the past six months.
ICBC is setting aside a 30 percent risk reserve of its subprime mortgage bonds to cover possible losses and has set a target of 10 percent credit growth this year, in line with the country's tight monetary policy.
Bank of China and ICBC are believed to have China's largest holdings of subprime mortgage debt. CBC holds about $1 billion in subprime debt and has set aside reserves to cover a possible 40 percent loss.
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