More pressure on Chinese banks after the reduction of lending rates
According to bankers and economists, next year, profitability of Chinese banks will be under pressure after lending rates are reduced.
The measures were announced by the central bank last week who had cut the reserve money requirements for banks and removed curbs on lending. These moves will squeeze interest spread of banks as well as boosting the total lending amount at the same time, they said.
Bankers and economists said that the lower lending rates have lowered both the financing burden for most of the banks and the chances of loan defaults.
People’s Bank of China cut its benchmark interest rate by 1.08 percentage points last Wednesday amid a number of less massive cuts in short-term deposit and lending rate.
As Chinese lenders’ major income source, the interest margin was narrowed although interest rates for the one-year deposit and lending rate fell by the same amount, said She Minhua, a China Securities analyst, it was expected to have bigger points than the 0.36 percentage points fall in demand deposit interest rate.
The interest spread is expected to narrow by 32 basis points, according to Wu Yonggang, an analyst at Guotai Jun’an Securities.
Based on the report of the Bank Of Communications International Trust Co, compared with the strong growth in recent years, lenders’ profit growth might fall below 10 percent in 2009.
But the moves are also light for many others. They said the negative impact of shrinking interest margins would be offset by the anticipated surge in lending.
In the short term banks’ net income will be reduced along with the narrowing interest spread, said Southwest Securities analyst Zhao Jun, but after a long time the rate cuts would increase lending and raise income.
According to Zhu Baoliang, an economist with State Information Centre, the Chinese commercial banks around 400 billion yuan for new lending which is higher than 360 billion yuan in 2008 will be available because of the latest rate and reserve ratio cut.
Since there maybe still a tough year ahead, Chinese bankers would rather remain cautious on new lending.
Bank of China’s vice-president, Zhu Min said that banks would not follow the projects of stimulus plan, and we need rigorous examination to guarantee the quality and results of the nation’s macro adjustment policies.
Are you interested in the business opportunities in China?
China is one of the world’s great growth markets and is likely to be for many years to come. Foreign companies often face difficulties in assessing Chinese market demand and enacting effective strategies because of the language barriers, culture differences, and high expense.
BPOVIA is the leading virtual assistant and Knowledge process outsourcing (KPO) service provider in China. BPOVIA is the only virtual assistant company ever been nominated for the prestigious “Red Herring 100 Asia” Awards 2008. Combines international perspective with local know-how, BPOVIA can provide our clients China business development service and help our clients doing successful business in China.
Please visit http://www.BPOVIA.com/ for details about our service.
Popularity: 10%