China Banks’ Growth Momentum Shifts Westward, Bernstein Says

Chinese banks that do more business in the nation’s inland regions may outperform those that depend on the developed eastern provinces, where growth is slowing, analysts at Sanford C. Bernstein wrote.

Larger lenders including Industrial & Commercial Bank of China (601398) Ltd., the world’s biggest by market value, China Construction Bank Corp. (939) and Bank of China Ltd. (3988) will benefit because their earnings are more balanced geographically, Hong Kong-based analysts led by Michael Werner wrote in a research note published today.

Inland regions are positioned to benefit from China’s effort to reduce its reliance on exports by increasing the role of consumption in the economy and boosting growth in poorer areas. The economy slowed for a seventh straight quarter in the three months through September as Europe’s debt crisis and sluggish growth in the U.S. crimped demand for Chinese goods.

“The shift in economic performance has begun to impact the Chinese banks,” the analysts wrote. “The banks that will report the strongest results in the coming 12-18 months will be the banks with the greatest exposure to the faster growing central and western regions of China.”

Bank of Communications Co. and China Merchants Bank Co. (3968) are among lenders that rely more on eastern regions, they wrote.

Inland regions such as Zhengzhou, capital of the mostly rural province of Henan, have benefited in recent years as companies such as Foxconn Technology Group, maker of Apple Inc. (AAPL) iPhones and iPads, moved away from costlier coastal regions, drawn by cheaper wages and local government incentives.

To contact Bloomberg News staff for this story: Aipeng Soo in Beijing at asoo4@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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