Bloomberg News

China Banking Shares Rise on Reserve Ratio Cut: Hong Kong Mover

February 20, 2012

Feb. 20 (Bloomberg) -- Chinese banking shares climbed after the central bank reduced the proportion of deposits they must set aside, cutting the ratio for the second time in three months to fuel lending and sustain economic growth.

Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, rose 2 percent to HK$5.66 in Hong Kong as of 11:12 a.m. local time. China Construction Bank Corp., the second largest, gained 1.6 percent, while Bank of China Ltd. rose 0.9 percent.

The People’s Bank of China cut the reserve ratio requirement by half a percentage point starting Feb. 24, to spur lending as Europe’s debt crisis damps exports and the housing market cools. Standard Chartered Plc forecasts at least three more reductions this year, while HSBC Holdings Plc predicts a minimum of two.

“Banks, especially with low loan-to-deposit ratios and good capital, such as ICBC and CCB, will have more capacity to stimulate their loan growth,” Barclays Capital analysts led by May Yan wrote in a note yesterday. “A loosening liquidity environment could reduce NPL risks as an economic slowdown gradually unfolds in 2012.”

Non-performing loans at Chinese banks rose for the first time since late 2008 in the fourth quarter of last year, reaching 427.9 billion yuan ($68 billion) as of Dec. 31, while the bad-loan ratio climbed to 1 percent from 0.9 percent at the end of the third quarter, the China Banking Regulatory Commission said on Feb. 17.

GDP Slowdown

China’s gross domestic product grew 8.9 percent in the fourth quarter from a year earlier, the slowest pace since the first half of 2009. Exports and imports fell for the first time in two years in January and new lending was the lowest for that month in five years.

A 50 basis-point cut may add 400 billion yuan to the financial system, according to Australia & New Zealand Banking Group Ltd. After the latest move, the reserve requirement ratio stands at 20.5 percent for large banks and 18.5 percent for small and midsized financial institutions.

--Luo Jun. Editors: Nathaniel Espino, Russell Ward

To contact Bloomberg News staff of this story: Luo Jun in Shanghai at jluo6@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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