China Banks

[specuvestor]

I thought this article posted was a good one by a Pulitzer writer coinciding with our argument here:

Indeed, the late Yegor Gaidar, who between 1991 and 1994 was Russia’s acting Prime Minister, observed in a Nov 13, 2006, speech that: “The timeline of the collapse of the Soviet Union can be traced to Sept 13, 1985. On this date, Sheikh Ahmed Zaki Yamani, the Minister of Oil of Saudi Arabia, declared that the monarchy had decided to alter its oil policy radically. The Saudis stopped protecting oil prices ... During the next six months, oil production in Saudi Arabia increased fourfold, while oil prices collapsed ... The Soviet Union lost approximately US$20 billion (S$25.5 billion) per year, money without which the country simply could not survive.”
http://www.valuebuddies.com/thread-5541-...l#pid97284

Forget about noob arguing about foreign reserve and currency but look at how china internationalises the RMB in the last decade:

The base was getting more trade activities with China with the joining of the WTO. Then it started liberalising the current account with invoices by SOC in RMB and allowing overseas UnionPay much like JCB during the 90s

Next was opening up the capital markets step by step via HK and Shanghai via bond and equities markets, as well as establishing clearing centres and banks in major financial centres. They are now encouraging other nations including Japan and australia to hold their reserves in RMB bonds, and Eurozone as well

Eventually i believe we will see RMB being used as a currency in major departmental stores in Asia if not beyond within the next decade. That will be when RMB is recognised as a hard currency in reality, not just textbook.

Step by step they have progressed and it shows they understand the dynamics and intricacies of the markets much better than market commentators or pundits, especially those who simply use the free market mantra without understanding the implications or how the market works.

It is unavoidable that the chinese major banks will have to follow these policy initiatives as well as follow where the customers ie chinese consumers and corporates go, much like the japanese in 90s. Their overseas exposure will inevitably rise significantly in the next decade with RMB internationalising.

If we extrapolate the current US energy policy and China's demand for energy, beyond next 10 years petro$ recycling may reach its end life after 50 years with RMB priced energy (this is not to say USD will no longer be a major global ccy but will be weakened)

[greengiraffe]

http://www.businesstimes.com.sg/banking-...hina-banks

Rising costs, competition bedevil midsized China banks
They are falling out of favour with investors as their margins from lending shrink

24 Oct5:50 AM
Shanghai

SQUEEZED between cut-throat competition from online financing firms and rising funding costs, China's midsize banks are falling out of investors' favour as they increasingly lag behind the country's top five lenders.

While margins generated from lending have remained

[greengiraffe]

China’s plans for Development Bank fall short
DOW JONES OCTOBER 24, 2014 11:00AM

China plans to launch a US$50 billion infrastructure lender Friday, a move aimed at challenging the hegemony of the U.S.-backed World Bank and Asian Development Bank in channelling capital to poorer nations in Asia.

But many of the countries that China’s government hoped would join the Asian Infrastructure Investment Bank won’t be present at the signing of a preliminary agreement in Beijing.

U.S. officials have attempted to sway countries not to join, publicly raising concerns about China’s ability to ensure international standards of governance at the institution.

No developed countries will be present on Friday, according to an Indian government official. India will sign the agreement-a step toward the later formal establishment of the bank-along with roughly 20 other countries from across Asia, the official said.

Beijing was betting on the participation of Australia, a major trade partner, which relies on Chinese demand for its natural resources and is currently negotiating a trade pact with China. An Australian government official said the country hadn’t decided whether to join and was unaware of the agreement to be signed Friday.

The U.S. has not commented publicly on whether it is interested in joining the bank-but that appears unlikely given recent comments by Obama administration officials.

U.S. Treasury Secretary Jacob Lew , at a conference earlier this month in Washington, raised concerns about whether the bank would adhere to international lending norms such as those followed by the World Bank.

“The critical question is, ‘Do they follow the same kinds of practices that are working to help economies grow and to maintain strong and stable foundations?’” Mr. Lew said.

A Japanese finance ministry official said the country wouldn’t join because it sees no need for an alternative to the Asian Development Bank, which is dominated by Tokyo. Japan also has concerns about governance and transparency issues at the new bank, the official said.

South Korea hasn’t decided whether to join and is still “looking at the governance and decision-making process” as well as the “economic benefit,” a government official said.

Chinese President Xi Jinping announced plans for the bank a year ago. It is part of Beijing’s efforts to challenge the U.S.-dominated global financial system that has existed since World War II. In July, China agreed along with Brazil, Russia, India and South Africa, to set up by 2016 a “Brics” development bank, to be based in Shanghai.

Chinese media has reported that Jin Liqun, who recently stepped down as chairman of China International Capital Corp., a Sino-foreign joint-venture investment bank, will play a senior role in the new infrastructure lender.

The Asian Development Bank estimates Asia needs around $8 trillion in investment by 2020 to improve the region’s battered infrastructure or face slowing economic growth.

The Beijing-backed lender will start with US$50 billion in total capital from member countries, largely China, with an aim to increase this amount over time. The Asian Development Bank, by comparison, had US$175 billion in capital at the end of 2013 and has 67 members, of which two-thirds are from Asia.

Curtis S. Chin, a former U.S. member of the Asian Development Bank’s board, said China’s new bank could shake up other donor banks, forcing them to reduce red tape which often leads to delays in loan disbursements. But he warned that China will need to ensure the bank doesn’t focus on getting money out the door “with limited concerns about environmental and social impacts.”

China’s finance minister, Lou Jiwei , at an Asia-Pacific Economic Cooperation forum media briefing Wednesday, said the new institution will make commercial investments in infrastructure, rather than focusing on poverty alleviation like other donor banks.

He acknowledged that countries have questions about governance. “We will draw on the good practices” of the Asian Development Bank and World Bank, he said. “But the purposes aren’t the same, so the governance structure won’t be the same,” he said, without elaborating.

Mr. Lou said he’s been involved in lobbying on the issue, meeting with the heads of the International Monetary Fund and World Bank. Those institutions, he said, would “be willing to join us” in project financing.

In his comments this month, Mr. Lew said the U.S. had questions about whether the new bank would uphold environmental and labour protections in its lending.

“I’ve made those points clear in bilateral conversations,” Mr. Lew said. “I’ve made it clear in multilateral conversations. And I certainly hope that countries that are choosing to participate are asking the same kinds of questions that we’re asking.”

The future of the bank likely will come up in discussions at the Asia-Pacific Economic Cooperation meetings next month in China, which culminate in a leaders’ summit Nov. 10-11 in Beijing, though the issue isn’t formally on the agenda.

The bank “is part of China saying it wants to lead on infrastructure financing in the region,” said APEC Executive Director Alan Bollard, in an interview. “The governance structure will be very important in terms of how many partners” China is able to sign up.

[CityFarmer]

More news on the new Chinese-backed Asia bank...

ADB chief doesn't welcome Chinese-backed Chinese rival

BEIJING - The Asian Development Bank (ADB) chief said on Thursday he doesn't welcome a China-backed rival bank that will have a virtually identical aim.

"I understand it, but I don't welcome it," said bank president Takehiko Nakao. "I'm not so concerned."

His remarks come on the eve of the first step toward founding the Asia Infrastructure Investment Bank (AIIB). Reporters have received invitations to a signing of a key document on Friday that will begin the process of launching the bank.

The two banks will have the same aim, but Nakao said he was not overly concerned about having competition as ADB already had a large staff and experience, having been founded in 1966.

"There's a misunderstanding that the ADB is for poverty reduction and AIIB is for infrastructure support, but the majority of our banking is to infrastructure," Nakao said.

He also downplayed the prospect that staff would leave for the rival bank.

The comments mark a reversal from Nakao's statement in May that he would be "very happy" to work with China on an Asia infrastructure bank.

The Manila-based ADB is owned by its 67 members with China owning roughly 6 percent. AIIB has attracted the interest of 21 countries, according to China's finance ministry.

Chinese President Xi Jinping first raised the idea of the AIIB in October 2013, although few specifics on how the bank will operate have been announced. REUTERS
http://www.todayonline.com/business/adb-...nese-rival

[greengiraffe]

Chinese property loan growth moderates in Q3
DOW JONES NEWSWIRES OCTOBER 28, 2014 8:45PM

Bank lending to China's property sector continued to grow at a slower pace in the third quarter of the year as the country's home market has cooled considerably since the beginning of this year.

Outstanding loans made by Chinese banks to the property sector totalled 16.74 trillion yuan ($2.7 trillion) at the end of September, up 18.2 per cent from a year earlier, the People's Bank of China said on Tuesday. The growth was 1 percentage point lower than that of a quarter earlier, the central bank said.

The slower growth in loans to the property sector reflects uncertainties in China's flagging home market, which poses one of the biggest risks to the world's second largest economy.

Property developers have been cutting home prices to attract buyers amid rising inventory levels in many cities. The average price of new homes declined 1.1 per cent in September from a year earlier, compared with a 0.5 per cent gain in August, official data showed.

Outstanding loans for property development totalled 4.18 trillion yuan at the end of third quarter, up 22 per cent from a year earlier. The growth rate was 1.7 percentage points lower than that of the second-quarter, said the central bank.

Outstanding mortgage loans to individuals rose 17.5 per cent from a year earlier to 11.12 trillion yuan at the end of third quarter, said the central bank.

China's central bank loosened mortgage restrictions at the end of September, allowing some existing homeowners to enjoy preferential lending rates and terms extended to first-time buyers. Analysts predicted that the move will boost mortgage loans in months ahead.

[greengiraffe]

Bad loans rise at China's four largest banks
DOW JONES NEWSWIRES OCTOBER 31, 2014 12:00AM

Sour loans on the books of China's biggest banks have risen 22 per cent since the start of the year, as slowing economic growth and overcapacity in a number of industries take an increasing toll on the financial sector.

The bad loans remain only a small portion of the overall loan portfolio of China's four biggest state-owned banks, which dominate lending in the world's second-largest economy after the US The banks also remain profitable, though their profit growth continues to pale compared with the double-digit quarterly surges they posted as recently as 2012.

Still, the growth in nonperforming loans adds to other signs of weakness in the Chinese economy. They include an ailing property market, where average new home prices are declining and where in some cities developers offer incentives ranging from free appliances to iPhones to new fittings for the house to spur sales. Industrial overcapacity in coal production, steel and textiles is starting to bite, and many small and privately owned firms are struggling to stay afloat, particularly in the manufacturing heartland of the Yangtze and Pearl River deltas.

At the end of the third quarter, China's big four banks -- Bank of China plus Industrial & Commercial Bank of China Ltd, China Construction Bank Corp and Agricultural Bank of China Ltd -- had 415 billion yuan ($US67.5 billion) of nonperforming loans on their books. That is up 22 per cent from the end of 2013 and is 8 per cent higher than when they last reported data at the end of June.

They averaged a nonperforming loan ratio of only 1.14 per cent at the end of September, up from 1.03 per cent at the end of 2013.

The banks also decreased the provisions they set aside against bad loans, suggesting they have been writing down bad debt. The banks didn't disclose details of any write-downs in the third quarter; Chinese banks generally disclose more details in their half-year and full-year results. ICBC posted the sharpest decline in such provisions; they fell more than 70 percentage points to 216.6 per cent.

Following a debt-fuelled investment boom that started in 2008 and has only recently tapered off, economic growth is now slowing and many companies are struggling to pay back what they borrowed during the good times. The Chinese economy grew 7.3 per cent during the third quarter, down from 7.4 per cent in the second quarter and 7.7 per cent for all of last year. The third-quarter rate was its slowest since the global financial crisis.

At the same time, interest-rate liberalisation has complicated life for the banks, raising the cost of funds and intensifying competition. Last year China removed a floor on lending rates, while officials have discussed removing a cap on deposit rates, which would further ratchet up competition.

Banks have been raising funds amid tighter conditions and government requirements to buff up their capital. On Thursday, China Citic Bank Corp., the country's seventh-largest lender by assets, said it plans to raise up to 11.9 billion yuan by selling shares to China's national tobacco company.

On Thursday, Agricultural Bank of China said third-quarter net profit rose 6 per cent from a year earlier to 48.41 billion yuan. Nonperforming loans stood at 103.47 billion yuan at the end of September, up from 97.47 billion yuan at the end of June, the bank said. Its bad loan ratio stood at 1.29 per cent, up from 1.24 per cent.

Bank of China, which also issued earnings on Thursday, said its third-quarter net profit rose 5 per cent from a year earlier to 41.41 billion yuan, lifted by higher interest income. Bank of China also reported 90.7 billion yuan of nonperforming loans as of the end of September, up from 85.86 billion yuan at the end of June. The bad loan ratio stood at 1.07 per cent, up from 1.02 per cent.

[greengiraffe]

Visa, Master welcome China's open cards move
US firms stand to gain access to a growing market worth more than US$1t a year


31 Oct5:50 AM
Beijing

VISA and MasterCard welcome China's plans to open up its market for clearing domestic bank card transactions, as they stand to gain access to a growing market worth more than US$1 trillion a year.

While China lags behind countries such as the United States in spending on credit, habits are changing fast and the Chinese are increasingly swiping plastic to satisfy their growing appetite for consumer goods.

The State Council, China's cabinet, said on Wednesday after a weekly meeting that foreign firms that meet its criteria could set up their own clearing companies. It did not provide details.

Visa, the world's largest credit and debit card company, welcomed the move. "We look forward to seeing the specific details and working with people within China to figure out what we need to do to participate in that marketplace, where we believe we can add a lot of value," chief executive officer Charlie Scharf said on a conference call, following the release of its fourth quarter earnings.

Household debt in China amounted to just 37 per cent of gross domestic product at the end of July, compared with 81 per cent in the United States.

But the Chinese, renowned for being thrifty, are changing fast.

China's total outstanding credit card balances, while less than 10 per cent of household debt, were a third higher at the end of June than a year ago, according to the People's Bank of China. The amount outstanding per card has increased by more than two-thirds in two years.

MasterCard, the second-largest payments company globally, also welcomes the opportunity to expand in the world's second-largest economy. "We will continue to monitor closely and look forward to the day when we can compete for domestic business in China," it said in a statement e-mailed to Reuters on Thursday.

The explosion in online retailers, fuelled by increasingly well-heeled youth, is adding to the allure of plastic.

Access for foreign firms to China's fast-growing electronic payments market is a controversial issue.

China promised to reform and free its electronic payments market after the World Trade Organization said in 2012 that its behaviour discriminated against US firms. It was not immediately clear if the move would allow foreign firms to process credit and debit card payments made in yuan in China.

In July 2012, the world trade body held that China had discriminated against US bank card suppliers in its electronic payments market by favouring state behemoth China UnionPay, following a complaint to the WTO by the United States.

The trade watchdog found that UnionPay had an illegal monopoly on yuan payment cards issued and used in China, but rejected the US claim that UnionPay was an "across-the-board monopoly supplier".

As a market-orientated business, China UnionPay will operate under the same regulations as other banks, to ensure equal market competition in a way that complies with the law," said UnionPay in a statement emailed to Reuters on Thursday.

As the world's largest card brand with 3.53 billion cards in circulation since its founding in 2002, UnionPay's rise came at a time of explosive growth in China's interbank card market.

Total bank card transactions leapt 37 per cent to 21.8 trillion yuan (S$4.6 trillion) in China in 2012, from 2011.

China requires all foreign card companies to piggyback on UnionPay's network when accepting yuan payments. This means firms such as Visa and MasterCard must give a cut of every credit or debit card transaction to UnionPay and the card issuing bank. In most other countries, the foreign card issuers pay only the bank because they use their own network.

Wednesday's promise to free a business sector is the latest step taken by China this year to open up its financial markets. The Chinese cabinet last month also said that it was freeing up the domestic courier market, potentially opening the way to competition by firms such as FedEx Corp and United Parcel Services.

But that announcement, like Wednesday's, also gave no details, and it was unclear which curbs would be eased. REUTERS

[CityFarmer]

They averaged a nonperforming loan ratio of only 1.14 per cent at the end of September, up from 1.03 per cent at the end of 2013.

The banks also decreased the provisions they set aside against bad loans, suggesting they have been writing down bad debt. The banks didn't disclose details of any write-downs in the third quarter; Chinese banks generally disclose more details in their half-year and full-year results. ICBC posted the sharpest decline in such provisions; they fell more than 70 percentage points to 216.6 per cent.

The "official" NPLs of the big-4 banks are still much lower than market estimation. It is a good sign the banks are writing-down the debt gradually. A good sign for the China financial system, but not for the banks' shareholders.

It will be interesting to know the amount been written down.

(not vested in any China bank)

[greengiraffe]

China’s shadow banking third largest in the world: FSB
OCTOBER 31, 2014 12:45PM

China’s shadow banking sector grew rapidly in 2013, putting the country in third place globally, according to a new report.

Shadow banking assets in the world's second largest economy increased by 37.6 per cent to almost $US3 trillion according to the Financial Stability Board (FSB).

The figures represented a slight fall from the previous year when assets grew at roughly 42 per cent.

Authorities have sought to crack down on the practice of shadow banking -- a huge network of lending outside formal channels and beyond the reach of regulators.

Globally, the shadow banking industry grew by $US5 trillion to about $US75 trillion worldwide in 2013, with emerging markets experiencing the fastest growth.

"Among emerging markets, the size and rapid growth of shadow banking in China warrants particular attention," the report said.

The group tasked with providing solutions for global financial regulation warned that the scale of shadow banking relative to the overall economy is approaching its pre-crisis peak.

The IMF warned in early October that shadow banking had grown to more than $US70 trillion ($A75.74 trillion) in assets, posing a risk to stability.

According to the IMF, shadow banks in the US have nearly twice as many assets as banks, and in the eurozone their assets have reached 60 per cent of the banks.

In developing countries the figure is close to 60 per cent.

[greengiraffe]

China eyes foreign capital as workforce ages
THE AUSTRALIAN NOVEMBER 05, 2014 12:00AM

Scott Murdoch

China Correspondent
Beijing


THE Chinese government could start to encourage greater foreign investment into its tightly controlled financial services sector in a bid to offset the burden of the nation’s rapidly ageing population over the next few years.

AMP last week became the first international player to be allowed to buy into China’s retirement market after it paid $240 million for a 19.99 per cent stake in China Life Pension Company, the largest pension player in China by assets.

The deal was a significant move by AMP which has forecast the enterprise annuities market in China, currently valued at $112 billion, could grow almost sixfold to $717bn by the end of 2020.

The enterprise annuities market is a voluntary defined benefit contribution system where employers can provide pre-tax contributions of up to 8.3 per cent, while employees can put up to 4 per cent of their annual salary.

It is estimated there are 66,000 schemes that cover 20 million people who are mainly state-owned enterprise employees.

Beijing has in place a sliding scale of retirement ages designed to stop thousands of workers flooding the pension and welfare system each year at once.

Under the current rules men can retire at 60, female civil servants at 55 and other female workers at 50, but the government plans to introduce a uniform pension age of 65 and already there is a growing backlash at the proposal.

It has been forecast that China’s working-age population will decline by 1.5 per cent each year over the next decade, prompting the government to search for ways to maintain productivity and the size of its labour force.

A report by the China Academy of Social Science found the nation would have the most aged population in the world by 2030 and that almost 330 million of its 1.3 billion population will be aged over 65 by 2050.

It is estimated that about 9 per cent of the population is now more than 65, compared with just 5 per cent three decades ago.

The People’s Daily said recently the government needed to fix the potential crisis of a rapidly ageing population.

“The problem with an increase in China’s elderly population will slow GDP per capita growth, investment and capital accumulation, while at the same time increase public debt. China needs to find a solution for this in order to ensure continuous and steady economic development,” it said.

The Chinese government caps foreign investment at 19.99 per cent of a financial services company.

However, it has put in place an ambitious proposal to introduce greater financial market liberalisation as part of its economic development plans and indicated it could be willing to increase the foreign investment cap.

The Chinese government also now offers individual tax incentives for workers who contribute to their own enterprise annuities retirement savings.

The changes came into effect on January 1 this year and allow workers to put up to 4 per cent of their annual wage into the retirement fund and the generated returns are tax free.

Swiss Life, the international insurance company, estimates about 20 million workers have enterprise annuity accounts but the tax changes are expected to provide a significant boost in the next few years.

“The (tax) rules will give an important boost to growing the employee benefits market in China, while helping to deal with the funding needs of China’s ageing population,” it said.