Large Chinese banks outperformed their Asian peers in growing loans and deposits faster in the quarter ended June 30, though the outlook remains uncertain due to weak borrowing demand in an economy hit by slowing economic growth.
Except for Shanghai Pudong Development Bank Co. Ltd., all mainland Chinese lenders on the list of 20 largest banks in Asia-Pacific posted year-over-year gains in loans in the second quarter, according to data compiled by S&P Global Market Intelligence. The loan growth, however, slowed to less than 10% for all banks, with Agricultural Bank of China Ltd. leading the pack with a 9.61% increase. China Minsheng Banking Corp. Ltd. recorded the lowest loan growth at 0.05%.
Among the 20 largest banks in Asia-Pacific, 13 are from mainland China, five are from Japan, one is from Australia and one is from Hong Kong.
COVID-19 overhang
Gary Ng, senior economist at Natixis Corporate & Investment Bank, attributed the weak borrowing demand to China's zero-COVID policy and tight regulations in real estate.
"There is also a tendency for faster short-term loan growth versus the decelerating medium to long-term loan growth. It shows firms only borrow to meet their liquidity demand, but the sentiment to invest further is very fragile," Ng told Market Intelligence. Ng noted that China's loan growth fell to 10.9% year over year in July from 11.6%.
China's central bank has continued to cut rates as authorities seek to support the economy that's been hit hard by the COVID-19 pandemic and troubles in the domestic property market. Gross domestic product expanded just 0.4% year over year in the second quarter, compared with 7.9% in the same period of 2021. The International Monetary Fund cut its 2022 growth forecast for China in its July World Economic Outlook report by 1.1 percentage points to 3.3%.
On the deposit accumulation front, mainland Chinese lenders also beat their peers in other Asia-Pacific economies, the Market Intelligence data shows. China Merchants Bank Co. Ltd. logged the highest year-over-year deposit growth in the June quarter, at 13.45%, followed by Ping An Bank Co. Ltd. and Industrial Bank Co. Ltd. with increases of 9.20% and 7.58%, respectively.
Chinese banks will continue to attract deposits, Ng said. But the divergence between large and small banks in deposit growth will increase.
"Banks will still be able to attract deposits, but the bigger risk is whether depositors will switch toward large banks given the latest drama in some small banks," Ng said. Customers of six village banks protested in early July after they were unable to withdraw money online.
Japanese banks' woes
All five Japanese banks on the list of Asia-Pacific's 20 largest banks by assets reported year-over-year contractions in both loans and deposits during the quarter, though analysts expect loan growth to slightly outpace deposit growth in the future.
The loan-to-deposit ratio for the Japanese banking system overall is around 56% and still on a slightly declining trend, said Michael Makdad, an analyst at Morningstar. It suggests that the Japanese economy is still in a deflationary or deleveraging scenario. "However, it is now close to flat and it is possible that loan growth will slightly outpace deposit growth in future, in contrast to the trend until now," Makdad said.
Japan's megabanks — Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. — reported contractions in loans of 10.78%, 12.11% and 6.25%, respectively, during the quarter, according to the data.