China banks' loan growth on track to meet the RMB8.5tn target for 2012

Total new RMB loans reached RMB6.72tn in the first nine months of 2012.

According to Barclays, the People’s Bank of China (PBOC) announced detailed loan statistics for 1Q-3Q 2012 on Oct 22, 2012. In the first nine months of the year, total new RMB loans reached RMB6.72tn (RMB1.04tn more than in the same period of 2011), about 79-84% of the RMB8-8.5tn loan target.

Here's more from Barclays:

Including foreign currency loans, total new loans in 1Q-3Q12 reached RMB7.1tn, of which corporate and retail loans were RMB5.2tn (up 15.8% y/y) and RMB1.9tn (17.8%), respectively.

In 3Q12, new corporate loans reached RMB1.26tn (RMB1.02tn in 3Q11). Mid- to long-term loan growth picked up slightly, increasing at 8.1% y/y (2Q: 7.9%) and contributing RMB350bn or 27.8% of new corporate loans (2Q: RMB482bn or 25.8%).

However, it will likely take some time for banks to make loans for infrastructure projects which have recently received regulatory approval. New short-term corporate loan growth was slower (3Q: RMB850bn, 25.1% y/y vs. 2Q: RMB1.3tn, 25.4%), but retail loan growth rebounded to 17.8% y/y (2Q: 16.6%) on faster growth of both consumer loans (3Q: RMB516bn, 16.8% y/y vs. 2Q: RMB343bn, 15.6%) and individual business loans (3Q: RMB285bn, 19.6% vs. 2Q: RMB286bn, 18.4%).

Property loans helped by policies
For the property sector, loan growth further rebounded to RMB417bn in 3Q12 or 12.2% y/y (2Q: RMB323bn, 10.3% and 1Q: RMB243bn, 10.1%). Growth drivers remained policy-related land development (3Q: 7.3% y/y vs. 2Q: 0.8%) and low-income housing development loans (61.7% y/y in 3Q).

Individual mortgage growth picked up to 12.6% y/y (RMB327bn in 3Q vs RMB188bn in 2Q) amid recovering property sales. On the other hand, general development loan growth slowed to 4.8% y/y and -0.1% q/q after recovering in 2Q (2Q: 6.3% y/y vs. 1Q 4.9%).

Overall, property loans are sufficient to support property demand/supply but a significant pick-up is not in sight, in our opinion. (For more details, please refer to our report "China Banks Perspective: Will real estate investment pick up in 2H12?," published 10 Aug 2012)

Loan growth to industrial sectors slowed down
For industrial sectors, total MLT loans growth slid to RMB35bn in 3Q or 5.1% y/y, 0.7ppts lower than that in 2Q12 (RMB50bn). The slowdown was mainly driven by heavy industries (outstanding RMB5.7tn, 89.7% of total MLT industrial loans), whose MLT loans grew at only 5.0% y/y compared to 6.2% in 2Q and in line with broad economic deceleration (3Q12 real GDP growth slowed to 7.4% from 7.6%).

For light industries, MLT loan growth rebounded to 6.0% y/y from only 3.6% in 2Q, matching the upward trend of sales of consumer goods (real growth of 11.6% y/y in Jan-Sep 2012 vs. 11.2% in Jan-June 2012) as well as consumer loan growth (as mentioned above, 3Q: 16.8% vs. 2Q: 15.6%).

For servicing sectors (mainly those in tertiary industry), MLT loans continued recovering to 8.1% y/y from the start of the year (1Q: 7.0% and 2Q: 7.4%).

According to NBS, real growth of tertiary industry recovered to 7.9% y/y in 1Q-3Q12 (1Q-2Q12: 7.7%) while those of primary and secondary industry have continuously shrunk.

SME loans continue to grow rapidly
SME loan growth became divergent in the third quarter: corporate SME loans slowed to 20.7% y/y from 21.4% in 2Q while individual business loans picked up to 19.6% y/y from 18.4%.

The mixed picture likely reflected the banks’ dilemma: growing their high-margin businesses to maintain their bottom line growth in the face of rising concerns over asset quality with the NPL ratio in Wenzhou, a city famous for its private sector economy and active small enterprises, increasing sharply this year (3.0% in August, up 1.64ppts YTD).

Nonetheless, the growth of SME corporate loans was still much faster than that for large (9.9ppts) and medium-sized enterprises (4.0ppts). Overall, total SME loans (including both corporate and individual) reached RMB16.9tn or 25.8% of total system loans, up RMB702bn in 3Q12.

Western China outpaced eastern and Central
Regionally, loan growth in eastern, central and western China all rebounded, to 13.9%, 18.6% and 19.8% respectively (13.5%, 18.2% and 19.2% in 2Q). The share of loans to eastern China went down by 1.1ppts y/y while that for middle and western regions went up by 0.4ppts and 0.7ppts.

Loan growth on track to meet full-year target of RMB8 - 8.5 tn
Overall, we expect loan growth in 4Q12 to follow the PBOC’s guidance (RMB8-8.5tn for RMB loans in 2012, RMB1.28-1.78tn in 4Q12). We maintain our neutral view on China banks. Our top Overweights are ICBC (1398.HK, TP HK$5.33) and BOC (3988.HK, TP HK$3.56).