Stimulus spurs loan growth 

Much of the recent surge in lending has represented financing for long-term infrastructure programs supported by the government, part of the stimulus package, as well as large and medium-sized state-owned companies, said Tang Jianwei, a senior analyst with Bank of Communications.

Tang noted that the 4 trillion yuan included 1.18 trillion yuan from the central government, with the rest coming from local governments and private investment, part of which would be channeled through the banking system and accounted for the lending increase.

"The new loans in January were mainly targeted at infrastructure and other projects to improve living standards. It will take time for us to see the benefits, but they will surely do a great deal of good for the Chinese in the long run," Cao said.

Weighing loan quality 

When assessing the quality of the loans, a major factor was how much social benefit the projects being funded could create, Wu said.

"Loans for those projects and carefully chosen borrowers would not involve big risks. The 4 trillion yuan stimulus package would provide domestic banks with better earnings prospects this year," Tang added.

Tang forecast that the banking sector's net profits might grow more than 5 percent this year because of booming loan business.

Xiao Gang, BOC chairman, said over the weekend that banks had become stricter about lending than years ago, and the recent loan expansion was not a result of loose standards.

NPL management would also be subject to many types of supervision, from independent directors of the bank and independent accounting firms to government departments such as the CBRC and People's Bank of China (PBOC), the central bank, Xiao added.

Smaller companies, western borrowers

Besides large projects and companies, a big slice of the new loans also went to smaller firms and less developed interior regions, which badly needed financing as they struggled with the impact of the global recession.

Several banks have announced lending efforts specifically aimed at such borrowers. For example, BOC has said it would extend 200 billion yuan in loans to central China's Henan Province for public transportation and infrastructure projects over the next five years.

Bank of Communications said it would lend 60 billion yuan to Shaanxi Province for infrastructure and projects to boost the manufacturing sector and improve living standards.

"Although the overall development level of China's middle and western regions falls behind the more prosperous eastern and coastal areas, the investment and economic growth rates in the middle and western areas were higher than the national averages in recent years, suggesting bigger growth momentum," Tang said.

Though banks were still cautious about loans to the private sector and small and medium-sized enterprises (SMEs), the national infrastructure projects would eventually benefit all sectors, including SMEs, said Lian Ping, chief economist of the Bank of Communications.

Tang also forecast the government this year would announce policies to encourage banks to lend to SMEs, whose access to finance has long been limited.

Almost 52 percent of corporate loans in 2008 went to SMEs, with the amount by value up 13.5 percent year-on-year, said Zhou Xiaochuan, the PBOC governor, during the legislative session last week.

Tang Zhenning, an official with ICBC's executive office, told Xinhua that the bank's lending to smaller companies focused on manufacturers with good credit records, and the loans had done much to help these SMEs get through the crisis and avoid job cuts.

Banking shares gain 

Chinese banking shares outperformed the Shanghai index in late February and early March, even as the stocks of their US and European peers were plunging. Some representative shares of banks in China, the United States and Europe show the diverging performances of sectors in each area.

For example, the shares of China Construction Bank and Bank of China, the second- and third-largest banks in China, have risen about 1.5 percent and 5.9 percent to 4.22 yuan and 3.58 yuan, respectively, in the past week.

Meanwhile, in the United States, Citibank's shares slid 14.2 percent to US$1.03 during the same period, and Wells Fargo Bank's shares dropped 20.57 percent to US$8.61.

Shares in Deutsche Bank AG, Germany's biggest bank, fell 4.38 percent to 18.79 euros (about US$14.80).

Tang said that the recent surge of domestic banks' loans and increasing income from this business had buoyed investor confidence in their shares.

Of the five publicly listed Chinese commercial banks that have already released preliminary results for 2008, all estimated that net profit rose at least 30 percent over the 2007 level. Three banks -- Bank of Beijing, China Citic Bank and Bank of Nanjing -- estimated that annual net profit rose 60 percent to 70 percent.

Ou Minggang, director of the International Finance Research Center of China Foreign Affairs University, noted that interest rates had been cut five times last year, with bigger cuts to lending rates than deposit rates. Ou said these asymmetrical cuts had squeezed banks' profit margins, while the recent surge in loans might involve potential risks.

But he said banks had improved their risk control to reflect these pressures, with the goal of maintaining profitability.

(Xinhua News Agency March 10, 2009)