Chinese banks are expected to boost China’s economic recovery in 2010, when 20-22% increases in bank loans are likely to be seen.
As per the China Banking Development Report released by the Bank of Communications, in 2010, bank loans in China will increase by 20-22% to accelerate the economic recovery. Also, it is expected that in 2010, the new Yuan credit balance issued by commercial lenders will reach 8-9 Trillion Yuan, according to the news published by
China Daily.
In the first three quarters of 2009, Chinese banks extended record 8.67 Trillion Yuan, a 30% y-o-y increase. This was done to echo government’s appeal for aggressive lending so as to fuel the economic growth.
A robust growth in loan lending will also lead to a boost in profits of the banking industry in 2010. An expected modification in the spread between deposit and lending rates next year will also boost the bottom lines of the banks.
To maximize the profits, banks are allowed to be more flexible to set appropriate loan rates so as to support the funding requirements of key infrastructural projects and corporations. Banks have also been asked to finance strong companies that may be facing temporary issues with cash flow and also to assist eligible first-time homebuyers.
According to a
RNCOS market research report, “
China Banking Sector (2007-2011)”, products like cars and houses will be highly demanded due to the increasing middle-class population as well as recovering economy, which will further stimulate the demand for loans in near future. As per the report’s forecast, during 2007-2011, the loans are likely to grow with around 12% CAGR and reach Yuan 41.92 Trillion (US$ 5.54 Trillion). Housing and auto loans will account for the major growth in bank loans.
System-wide non-performing loans (NPLs), however, would continue to be stable. Due to the increase in outstanding loans, there might even be a fall in the NPL ratio. It is also expected that in 2010, short-term credit, which rather than choosing the real economy easily goes to the speculative stock market, may fall.
According to a Research Analyst at
RNCOS, “The key factor behind the quick recovery of China’s economy has been the strong bank lending. It can, however, result in an increase in bed debt. In order to reduce the risk, rather than blindly pursuing credit growth, banks must aspire for steady asset returns.”
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