Most of the largest banks in China saw their market capitalization fall further in the third quarter amid a slowing economic outlook and loan worries at one of the nation's biggest property developers.
With the exception of Postal Savings Bank of China Co. Ltd., all other Chinese lenders among the 20 largest banks across Asia logged quarter-over-quarter declines in market cap in the three months to September, according to data compiled by S&P Global Market Intelligence. Ping An Bank Co. Ltd. recorded the largest drop of 20.73%, while the decline for Bank of China Ltd. was the smallest among the bunch at 0.66%.
Still, eight Chinese banks made it to the list of the 20 largest Asia-Pacific banks by market cap in the quarter. Industrial & Commercial Bank of China Ltd., China Merchants Bank Co. Ltd., China Construction Bank Corp. and Agricultural Bank of China Ltd. retained their respective spots as the top four, while Industrial Bank Co. Ltd. completed the Chinese lenders in the roster at 15th place, following a 10.95% reduction in its market cap.
"The performance of Chinese banks in the third quarter was mainly dragged by investors' concern over the slowdown of China's macro recovery, market sentiment curb amid regulatory crackdown, as well as contagious risk from the property sector," said Bruce Pang, Hong Kong-based head of macro and strategy research at China Renaissance.
Chinese banks have been for months facing slowing loan growth and compressed interest margins amid a softening economic outlook and regulatory clampdown on excess leverage in the corporate sector. In July, the IMF cut 0.3% in its 2021 forecast for China's GDP to 8.1%. S&P Global Ratings also revised its 2021 GDP forecast for the country to 8% from 8.3%. Some analysts say the ongoing debt crisis at China Evergrande Group could further hit the lenders' confidence to lend.
Pang said three emerging trends stemming from tightened regulations may affect the outlook on banks, namely: a drop in retail loan yields due to regulation and risks, growth in nonloan assets impairment and a lackluster corporate loan demand amid a slower pace of macro recovery and property curb.
Pang, however, is optimistic that the last leg of the year will mean more opportunities for Chinese lenders, given the well-rounded improvements on asset quality, solid fee income growth, undemanding valuation levels, mutual funds' potential increase of holdings to secure returns towards year-end, partly eased pressure from regulatory turbulence, and the growth of total social financing expected to bottom in September.
Two other Indian banks — HDFC Bank Ltd. and State Bank of India — also featured in the list as did the remaining three major Australian banks: Commonwealth Bank of Australia, Westpac Banking Corp. and National Australia Bank Ltd. Completing the list were Japan's Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. and Singapore's DBS Group Holdings Ltd.
In July, Ratings said the return to normalcy from the COVID-19 pandemic may take longer for lenders in the Asia-Pacific region due to a slower rate of vaccination rollout.
As of September, daily coronavirus cases remain high in several parts of the region and lockdowns remain in place for some jurisdictions. The rating agency believes the impact of ongoing and subsequent pandemic waves will be lower for high-income Asian countries with wide vaccination coverage. However, it still cut its outlook for most economies in the region and retained forecasts for India and Hong Kong.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.