China Banks Rally on Valuation as Regulator May Loosen Loan Rule

Chinese banks rallied in Shanghai and Hong Kong, rebounding from valuations near record lows as a newspaper reported that regulators may ease enforcement of loan rules at smaller lenders.

China Citic Bank Corp. surged by its daily limit of 10 percent to 5.16 yuan in Shanghai and rose 4.8 percent in Hong Kong as of 11:50 a.m. Ping An Bank Co. (000001) gained 6.6 percent in the mainland city and China Everbright Bank Co. (601818) climbed 5 percent.

The China Banking Regulatory Commission encouraged small banks to focus on branches’ loan-to-deposit ratios using the average daily level each month and to stop checking the ratio on any given day, the 21st Century Business Herald reported, citing a person it didn’t identify. That may increase lending capacity, said Tan Hui, a Beijing-based analyst at Founder Securities Co.

“Lack of deposits is the biggest constraint for loan expansion at most smaller banks,” Tan said. “We are seeing positive signs for banks’ operations this year. At the current valuations, Chinese banks will be very attractive to many” foreign investors.

China’s 16 publicly-traded lenders have gained an average 10 percent this year, compared with the 1.6 percent increase in the benchmark Shanghai Composite Index. (SHCOMP) They trade at about 6.9 times estimated earnings for this year, near a record low, according to data compiled by Bloomberg.

China doesn’t allow banks to lend more than 75 percent of their deposits, to contain risk. Domestic lenders advanced 8.2 trillion yuan of new loans last year, 10 percent more than 2011 and the second-highest level on record, central bank data show.

To contact Bloomberg News staff for this story: Jun Luo in Shanghai at jluo6@bloomberg.net

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

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