HSBC Global Asset Management bought Chinese bank stocks last month, dismissing concerns that record credit growth would increase bad loans and accelerate inflation.
Non-performing loans (NPL) related to project financing won’t become a problem until 2012, said Mandy Chan, investment director of equities at Halbis, part of HSBC Global Asset, which oversees US$416 billion worldwide.
“We are concerned about local financing platforms, high gearing and asset quality, but we don’t see project-financing related NPLs as a problem until two years later,” Chan said in an interview in Hong Kong.
Chinese banks doled out a combined 9.59 trillion yuan (US$1.4 trillion) in new loans last year, helping the government engineer a turnaround in the world’s third-largest economy.
The credit binge drained lenders’ capital and sparked concerns about asset bubbles, an increase in bad loans and greater inflation pressure.
China’s publicly traded banks have already raised about 150 billion yuan from bond and share sales since the second half of last year to replenish capital, Bloomberg data showed.
Lenders including Bank of China Ltd (中國銀行) and Bank of Communications Co (建設銀行) have announced plans to raise another 105 billion yuan.
“We are ‘underweight’ banks, but after the fundraising plans came out, it turns out that earnings dilution isn’t very significant,” Chan said. “So once the uncertainties were cleared, we bought some in February. Once the overhang is gone, they’ll start to perform.”
She declined to name specific companies.
Chan’s view echoed that of Standard & Poor’s Ratings Services, which said yesterday that Chinese banks were financially strong enough to withstand the pressure on profits as bad loans increase.
Bank lending may expand 20 percent this year after a 30 percent increase last year, the ratings company said. Standard & Poor’s expects the soured debt to remain less than 10 percent of total advances for the next two years.
Inflation expectations are rising in China, making it more difficult for Chinese Premier Wen Jiabao (溫家寶) to meet his 3 percent full-year target for price increases and adding to the case for an interest-rate increase.
Last month’s consumer price gain of 2.7 percent, the biggest increase in 16 months, was swelled by a weeklong holiday that fueled spending and cost increases.
China will likely raise interest rates in the second quarter of this year, Chan said.
That’s earlier than HSBC’s previous forecast that it would be increased in the second half of this year because of accelerating food price increases and wage inflation, she said.
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