subject: Aarkstore Enterprise Quarterly Report On China's Banking Industry, 2008q3 [print this page] After extending credit to small- and medium-sized companies in August 2008, China's central bank developed policies to lower both interest rates and bank reserve requirements, which would ease the loan conditions. But since banks have become parsimonious with loans, the increase of mid- and long-term loans began to slow down since the third quarter of 2008. By the end of September the balance of local and foreign currencies of China's financial institutions was RMB31,480bn, up by 14.73% year-on-year, while the balance of renminbi loans was rose 14.48% to RMB29,650bn.
Deposits increased to RMB6,560bn in China's financial institutions 01/2008-09/2008, up RMB1,810bn year on year. The variety of deposits shows that the contribution of non-financial companies and governments slowed, while deposits from residents accounted for a majority, and dominated by regular deposits. Data show that the share of regular deposits increased to 47.7% of the total in renminbi, up 1.5% from the previous quarter, and 1.2% from the previous month.
The gap between M1 and M2 in the third quarter grew to its widest since May 2006, showing that the money generation speed of China's financial system has slowed along with the demand of real economy. The fund chain of companies is under great pressure even if more bank loans become available.
With the expectation of a slowdown of macroeconomic growth and the lowering of interest rates, the outlook for corporate profit is negative - companies are less keen to invest, residents lose confidence on consumption and are less willing to spend on housing, and more regular deposits fuel the reduction of net interest margins. In addition, although the direct influence of the current global financial crisis is limited to China's banking industry, the potential risks the industry may face should not be ignored.
This is a quarterly report and is produced 4 times a year, with yearly subscription available.
