The regulator is letting the lenders use more of their deposits to make loans, the bank officials said, after China’s exports, industrial production and retail sales declined in the first two months. Loan growth has slowed this year as depositors seeking higher returns removed money from savings accounts and the economy’s expansion at the smallest pace in 10 quarters curtailed demand.
The banking regulator is increasing the 2012 loan-to- deposit ratio target for Industrial & Commercial Bank of China Ltd. to 63 percent, an official at the Beijing-based lender said, declining to be identified as the matter is private and yet to be finalized. He declined to provide last year’s figure. The measure was also raised at two rivals, officials at those banks said, declining to provide their 2012 targets.
“Deposit growth has been sluggish since late 2011 and severely constrained banks’ lending capacity this year,” said James Liu, a Hong Kong-based analyst at CIMB Securities HK Ltd. “The regulator wants to alleviate the problem by giving banks adequate resources to lend.”
China’s factory output in the first two months rose the least since 2009, while retail sales increased less than economists predicted and inflation eased to the slowest pace in 20 months, data showed last week. That builds the case for Premier Wen Jiabao to accelerate stimulus measures in the world’s second-biggest economy.
Property Curbs Remain
The government is keeping restrictions on the real estate market, with Wen saying yesterday a relaxation of the curbs would lead to “chaos.” A gauge tracking property stocks sank 3.7 percent after his comments at a news conference in Beijing and the Hang Seng Index (HSI) erased earlier gains to drop 0.2 percent. ICBC dropped 1.1 percent to HK$5.33.
Chinese laws restrict lending to no more than 75 percent of deposits. The banking regulator last year began imposing even more stringent rules for the largest lenders after a record $2.7 trillion credit boom over the two years to December 2010 threatened to trigger a wave of defaults. The CBRC in 2011 gave the lenders separate targets on key metrics such as loan-to- deposit, capital adequacy and bad loan-coverage ratios.
The four biggest banks had 39.5 trillion yuan ($6.2 trillion) of deposits as of the end of September, according to their third-quarter earnings statements. At that level, a one percentage point increase in the loan-to-deposit ratio would allow them to lend 395 billion yuan more.
Targets Under Review
The limits were eased at China Construction Bank Corp. (939) and Bank of China Ltd. (3988), an official at each bank said, citing targets provided by China Banking Regulatory Commission officials at meetings last week. The targets are being reviewed by the lenders and may change, the people said.
At Agricultural Bank of China Ltd., the country’s third- largest lender by assets, the 2012 loan-to-deposit ratio target was lowered last week to 59 percent, a bank official who declined to be named and a person with direct knowledge of the matter said. The Beijing-based lender had ended last year at more than 56 percent, they said.
ICBC, which is also based in Beijing, has a loan-to-deposit ratio of about 60 percent, President Yang Kaisheng told reporters earlier this month. The measure was 65.14 percent at Construction Bank, which was ranked No. 2, as of Sept. 30, according to its third-quarter statement. China’s biggest banks are scheduled to report fourth-quarter results later this month.
A press official at the banking watchdog, who can’t be identified due to the agency’s rules, and spokesmen at ICBC and Construction Bank declined to comment. Press officers at Bank of China and Agricultural Bank didn’t return calls to their offices.
The CBRC also raised the capital adequacy ratio target, which measures how much capital is needed to support risky assets, for ICBC to 12 percent for 2012 from 11.8 percent, the official at the bank said. Construction Bank was left unchanged at 11.8 percent, and for Agricultural Bank at 11.7 percent, executives at those banks said. Bank of China declined to provide its target.
Penalties for Banks
Banks that fail to meet the regulatory requirements will be given a three-month grace period before facing penalties such as restrictions on businesses and cuts in executives’ compensations, three of the bank officials said.
The People’s Bank of China last month reduced the amount of deposits that lenders must set aside as reserves to ease funding constraints and bolster credit growth. New loans fell to 1.45 trillion yuan in the first two months of the year, the lowest since 2008, according to data compiled by Bloomberg.
The banks’ competition for deposits has also intensified after negative real rates of return on savings triggered a diversion of money to higher-yield investment products. Depositors in January pulled 800 billion yuan from savings accounts, central bank data showed, the largest monthly decline in at least 12 years. Deposits climbed by 1.6 trillion yuan in February.
“Tepid deposit growth and a stringent regulatory cap on the loan-to-deposit ratio have constrained banks’ capacity to lend further,” Liao Qiang, a Beijing-based analyst at Standard & Poor’s, told reporters March 13. “Easing will continue this year as inflation is down.”
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