Mainland Chinese banks boost Basel III leverage ratios in Q4 2023

Leverage ratios at most mainland Chinese lenders rose as of Dec. 31, 2023, despite the government urging banks to boost lending to the real estate sector and stimulate economic growth.

Twenty out of 31 major banks in China reported year-over-year increases in Basel III leverage ratios, S&P Global Market Intelligence data show.

Shengjing Bank Co. Ltd. posted the largest increase in the Asia-Pacific region among banks with over $100 billion in assets, with its ratio rising 148 basis points (bps) to 8.37%. Huishang Bank Corp. Ltd. and Zhongyuan Bank Co. Ltd. also reported gains, increasing their ratios by 94 bps to 6.84% and 84 bps to 6.87%.

A bank's leverage ratio, which measures its common equity Tier 1 and additional Tier 1 capital as a percentage of total leverage exposure, indicates its capital reserves and preparedness for financial crises. Lower ratios suggest lower capital reserves but potentially more aggressive lending.

Stepping up

Mainland China's economy grew 5.2% in 2023, surpassing its 5.0% target. To support key sectors like real estate, which represents nearly a quarter of the nation's GDP and faces a downturn, the government urged banks to increase lending. The People's Bank of China maintained an easing stance throughout most of the year.

But major banks' leverage ratios decreased as of Dec. 31, 2023. Industrial and Commercial Bank of China Ltd.'s (ICBC) ratio dropped 37 bps to 7.95%, Bank of China Ltd. fell 26 bps to 7.39%, and China Construction Bank Corp. decreased 2 bps to 7.83%.

Loan growth at Bank of China accelerated by 2.1 percentage points to 13.8% in the fourth quarter of 2023. Meanwhile, ICBC and China Construction Bank's loan growth remained steady at 12.4% and 12.6%, respectively. New bank lending in China rose 6.1% in 2023, reaching a record 22.750 trillion yuan, according to central bank data.

Indian banks

Seven of the nine largest Indian banks posted gains in their leverage ratios, with HDFC Bank Ltd. leading the group with a 112-bps increase to 10.64%, largely due to its merger with parent company Housing Development Finance Corp. Ltd. in July 2022. Following the merger, HDFC Bank's assets surged 51.3% to $466.35 billion. Punjab National Bank followed, with its ratio climbing 85 bps to 5.47% as of Dec. 31, 2023.

Other top performers in the sector include ICICI Bank Ltd. and Axis Bank Ltd., with leverage ratios of 8.89% and 7.78%, as of the end of December 2023.

Indian banks have outperformed their Asian peers, benefiting from robust economic conditions and strong credit growth. Credit growth reached 15.6% as of Dec. 29, 2023, up from 14.9% the previous year, according to Reserve Bank of India data. The government estimates a 7.6% expansion in GDP for the year ended March 2024, building on an 8.4% growth rate in the fourth quarter of 2023.