Banks' profitability secure
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The slowdown on lending to infrastructure and property projects in light of the government's tightening up policies would not bring any major impact to banks' profitability, experts said Sunday.
The new loans to mid- and long-term infrastructure projects amounted to 1.03 trillion yuan ($151.92 billion) in the first half of the year, but overall growth of the outstanding loans slowed down 8.6 percentage points from the first quarter, according to the People's Bank of China (PBC)'s report released Friday.
The new lending for property development totaled 442.3 billion yuan ($65.24 billion) in the first half, with 121.6 billion yuan ($17.93 billion) in the second quarter, according to the PBC.
"It means that the regulator had successfully controlled new lending," said Zhang Youxian, analyst at the Bank of China's Institute of International Finance.
The government tightened the property sector by restraining bank loans to housing investment in April, and the regulator also asked banks to control lending to debt-laden local government funding vehicles for infrastructure projects.
Bank loans to property and infrastructure projects accounted for a combined 60 percent of last year's total increased loans.
If the tightening measures remain in place for property and infrastructure in the second half of the year, the banks will be left with few options for investment, Zhang said.
Lending to small- and medium-sized enterprises (SMEs) could be an option but the obscure operations and financial reporting as well as the family management style make it hard for banks to conduct risk assessments or sustain controls.
The current statistics on new lending to SMEs may not be reliable due to a lack of clear definitions. Many subsidiaries of the larger enterprises are defined as SMEs but actually are not, Zhang noted.
As 60 percent of the 7.5 trillion yuan ($1.11 trillion) target loans were released in the first half, the negative impact to the banking sector's profitability has been limited, he said.
China's banks will make a profit as long as they rely on the officially set lending and deposit interest rates, said Ding Jianping, a finance professor with the Shanghai University of Finance and Economics.
The current official rate for a one-year deposit is 2.25 percent, lower even than the official inflation rate of 3 percent estimated for the year, while the one-year lending prime rate is set at 5.31.
The net interest margin could be even higher for the banking sector.
Ding said if interest rates were set at the market rate, the bank's interest margin or profitability might narrow, but this won't happen within the next few years.
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