Leverage ratios at large mainland Chinese lenders declined as banks heeded the government's call to support economic growth by issuing more loans and as their capital contracted.
Twenty of the 35 mainland Chinese banks with more than $100 billion in assets posted year-over-year declines in Basel III leverage ratios as of June 30, S&P Global Market Intelligence data shows. Bank of Beijing Co. Ltd. saw its leverage ratio fall 64 basis points from June 30, 2022, the data shows. Agricultural Bank of China Ltd. followed next, with a 60-basis-point fall, while Postal Savings Bank of China Co. Ltd. had a 45-basis-point decline year over year.
A bank's leverage ratio measures its common equity Tier 1 capital and additional Tier 1 capital as a percentage of total leverage exposure. A lower leverage ratio indicates that a bank has less capital reserves and is less prepared to weather financial crises, but it could also mean that it has been lending at a faster rate.
Easing mode
Mainland China's economy grew 4.9% year over year in the third quarter, according to Oct. 18 government statement. While that beat most economist estimates, it indicated the challenges facing the world's second-biggest economy, which was hit hard by the COVID-19 pandemic. Gross domestic product growth averaged 5.5% in the first two quarters of 2023.
Chinese lenders issued 15.73 trillion yuan of new loans in the first six months of 2023, the highest number in a half year on record, according to central bank data. The People's Bank of China has stayed in easing mode this year while most global central banks raised rates, and the government has announced fiscal measures to support the economy. Several mainland Chinese banks posted declines in their common equity Tier 1 ratios in the second quarter, though buffers built over prior years will likely help protect their earnings.
Still, some Chinese lenders posted year-over-year gains in their leverage ratios as of June 30, according to Market Intelligence data. Shengjing Bank Co. Ltd. posted a sharp 127-basis-point incline, followed by Zhongyuan Bank Co. Ltd. with a 101-basis-point increase.
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PT Bank Rakyat Indonesia (Persero) Tbk posted the highest leverage ratio among banks in Asia-Pacific. Even with a 1.86-percentage-point decline year over year, the Indonesian lender's leverage ratio was 14.89% as of June 30. PT Bank Mandiri (Persero) Tbk followed at 11.26%.
Indian government banks
State-owned Indian lenders posted sharp increases in their leverage ratios. Punjab National Bank's leverage ratio rose 73 basis points year over year to 5.33% as of June 30, while Canara Bank posted a 57-basis-point gain to 5.59%. Other state-owned lenders, including State Bank of India and Union Bank of India, also posted gains in their leverage ratios.
India's private-sector lenders such as HDFC Bank Ltd., ICICI Bank Ltd. and Axis Bank Ltd. maintained some of the highest leverage ratios in the South Asian nation. HDFC Bank's leverage ratio stood at 10.46%, while that of ICICI Bank was 9.71% and Axis Bank 8.38%.
"Top-tier Indian private sector banks typically hold higher levels of capital compared to government-owned banks, and they have strengthened their capital levels in the last few years by new capital issuance," said Geeta Chugh, an analyst at S&P Global Ratings. However, capital levels of Indian banks are likely to fall in the next two of years on the back of strong credit growth, Chugh said.
