The first quarter credit target may fail, as joint-stock banks face a narrowing net interest margin. Is the shortfall below expectations due to weak demand? A person in the banking industry revealed that not long ago, the People's Bank of China (PBOC) had allowed the five major state-owned commercial banks to increase their loan disbursement in the first quarter, with the quota temporarily set at a 5% year-on-year increase. This year, the PBOC's overall credit arrangement for the industry still follows last year’s rhythm of "30%, 30%, 20%, 20%" for the four quarters. However, contrary to the monetary easing expectations released by the regulatory authorities, the newly added loans of only 730 billion yuan in January came as a surprise to the market. Wednesday of this week is the last day of February, and many institutions predict that even the optimistic expectation of financial institutions' total new loans in February being roughly equivalent to last month will fall short. The combined newly added loans in January and February last year were nearly 1.6 trillion yuan.
Analysts believe that according to the total target of 8 trillion yuan, the banking industry's newly added loans in the first quarter will be around 2.4 trillion yuan, but the newly added loans in the first two months are only about 1.4 trillion yuan. Unless there is another surge in March, the newly added loans in the first quarter will fall below the expected target.
Professional analysts analyze the reasons, for joint-stock medium and small-sized banks, mainly due to the restrictions of the loan-to-deposit ratio; for large banks, the real estate and local financing platform businesses are strictly controlled, and large enterprises hold an观望attitude towards the economy, leading to weakened demand, which may result in enterprises not necessarily using the quotas even if they obtain them. In addition, overall, the volume of real estate mortgage loans has also decreased.
Weakness affects banks' pricing power
Regarding the slowdown in new loans, a report from China International Capital Corporation (CICC) pointed out that since the decline in net interest margins in 2012 was not significant, large banks do not have the operating pressure of compensating for price declines with volume increases, and banks' risk preferences have decreased, raising the approval threshold. Looking ahead, the adjustment strength of the central bank's monetary policy will increase. Currently, the issued and planned issuance of financial bonds for small and micro enterprises has reached as high as 340 billion yuan, which will help enhance the lending capacity of medium and small-sized banks.
This week, the PBOC resumed routine operations in the open market, locking in a single-week net withdrawal of funds in advance. Since the beginning of the year, the issuance of central bank bills has been suspended, especially the one-year central bank bills with strong policy implications have remained "silent", resulting in a continuous loose market capital situation. According to reports from Economic Voice, the model prediction of China's quarterly macroeconomic model 2012 spring forecast release predicts that the central bank may cut interest rates twice consecutively in the second and third quarters.
CICC expects that the supply and demand conditions of future credit will change, and the net interest margin will gradually decrease, especially for joint-stock banks, there is a risk that the net interest margin will fall below expectations. With the improvement of loan supply and the continued decline in demand, banks' loan pricing power will gradually decline, the net interest margin will gradually decrease, particularly affecting joint-stock banks.
Weekly Highlights:
Local Financing Platform Loan Extension Plan Gradually Determined, Banks Forced to Accept
"The China Banking Regulatory Commission (CBRC) has recently issued a draft opinion on the supervision of risks of local financing platforms to commercial banks, and the loan extension plan for platforms will be introduced soon." On February 28th, a senior manager of a state-owned bank revealed to reporters that several loans of the bank have been confirmed unable to repay upon maturity, and loan extensions are being applied for. In fact, conditional extensions have become a choice that banks have no choice but to make. Details >>>
PICC Group and China Tobacco to Invest in Industrial Bank
The matter of Industrial Bank introducing strategic investors has basically determined the targets. Yesterday, a source confirmed to reporters that PICC Group and China Tobacco will invest as strategic investors in Industrial Bank. It is reported that PICC's investment scale could reach nearly 18 billion yuan, while China Tobacco's investment scale would be around 8 billion yuan. Details >>>
PBOC: Credit Card Cash-Out Risk Shows Signs of Decline, Zero-Cost Benefits Will Be Punished
After the "two highs" issued judicial interpretations regarding credit card cash-out issues, related cases have shown an increasing trend recently. Today, relevant personnel from the PBOC stated that the overall credit card cash-out risk currently shows signs of decline, but regulatory agencies always pay close attention to such illegal activities, striving for related regulations to be issued as soon as possible, and will organize special governance activities based on the new rules. Details >>>
Chinese Bankers Are Entering a High-Risk Period
Now, the public views bank super-profits with scrutiny and even criticism. Starting from 2010, with the re-emergence of inflation, the pace of the central bank's interest rate hikes has lagged far behind the actual interest rate level, leading China's economy into another "negative interest rate" era. Currently, the one-year deposit interest rate is 3.5%, while the inflation rate for the whole year of 2011 is at least over 5%, keeping residents' savings deposits in a negative interest rate state of over 2%. Under inflation, "running faster than Liu Xiang but not running faster than CPI" has become the public's common anxiety. Exorbitant profits have been criticized by outsiders as "at the expense of sacrificing and depriving savers and depositors of their interests."
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