No Pause in Credit Growth of Chinese Banks

Dec. 3.10 | About: SPDR S&P (GXC)

Credit growth in China has not slowed materially from its rapid pace in 2009, despite the fact that headline data point to a slowdown, according to a special report from Fitch Ratings. The agency states that Chinese banks have been offloading CNY trillions in loans in 2010 by artificially reducing their holdings of discounted bills and by re-packaging the loans into investment products for sale to investors.

"Talk of a substantial slowdown in credit growth in China is premature, but understandable, given the visible drop in official figures on net new loans," said Charlene Chu, Fitch's head of financial institution ratings in China. "However, in reality, lending has not moderated, it has been diverted into other channels."

The report examines discrepancies in Chinese banks’ portfolios of discounted bills and acceptances in 2010, and provides an update on recent trends in informal securitization, i.e. the re-packaging of loans into wealth management and trust products. According to the report, the balance of Chinese banks’ discounted bills was understated by as much as CNY1.65 trillion ($250bn) at end-Q310. Meanwhile, by end-November 2010, upwards of CNY2.5 trillion ($375bn) in credit was sitting in off-bank balance sheets in credit-related wealth management products.

“Adjusting for these factors, the amount of new credit extended through end-Q310 is on par with the CNY9.3trillion extended through end-Q309," said Chu. "Credit conditions remain extremely loose, which helps explain why inflation and property prices remain stubbornly high."

For more details on the Fitch report, see Chinese Banks: No Pause in Credit Growth, Still on Pace with 2009.