China reopening to push up demand for retail loans: analyst

China Merchants Bank will reap full benefits of the reopening.

China’s reopening of its borders is expected to increase retail loan demand and decrease loan delinquencies, reports UOB Kay Hian.

China reopened its border of 8 January, a move that UOB Kay Hian analyst Sabrina Soh expects to translate to substantial benefits for the country’s banks.

“[A] more robust demand should support loan volume and pricing, stronger corporate and household balance sheets should support asset quality, and the improved risk appetite of the household sector and an increase in business/ household activities should boost fee income growth,” Soh wrote in a report.

In 2022, China’s household loans increased only by RMB3.83t in 2022, about RMB4t short of the growth reported in 2021. Property sales have also fallen 25% in 2022, which meant that banks also provided fewere mortgage loans.

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Lending growth is expected to be supported by the government’s overall plan to rebuild the $17t economy following the COVID-induced slump in 2022.  

“We anticipate further measures to boost housing demand in 2023. These plans could include further reductions in mortgage interest rates, down payment requirements, and loosening limitations on property purchases in China's premier cities,” Soh said.

China Merchants Bank in particular is expected to “grasp the full benefits of the retail rebound resulting from the reopening of borders and real estate policy,” according to Soh.

“China Merchants Bank's retail competitive advantage is still compelling from a long-termperspective, the bank's profitability has continuously surpassed its peers, and the forwardlooking strategic structure has become the key driver of the premium valuation over time. In addition, we believe that the good long-term trend in the China wealth management market has not changed,” Soh added.