Loan-to-deposit ratios rose at most major mainland Chinese banks in the 12 months to June 30 as loans outstripped deposits.
According to S&P, 10 out of 13 mainland Chinese banks had increased their loan-to-deposit ratio (LDR) as of June 30 compared to a year ago, with China Everbright Bank’s loan-to-deposit ratio (LDR) increasing by 9.17 percentage points (pps). recorded the largest increase of the year. Global Market Intelligence data shows. Net loans totaled $538.2 billion, up 3.6% year-on-year, and the bank’s LDR stood at 99.78% as of June 30. The lender’s total deposits fell 5.9% over the same period to $539.4 billion.
Alicia García Herrero, chief economist for Asia Pacific at Natixis CIB, told Market Intelligence: “Banks’ overall deposit base is shrinking, which is having a negative impact on banks’ ability to generate interest income and profitability. ” he said.
LDR is used to assess a bank’s liquidity and is calculated by dividing a bank’s total loans by its total deposits over the same period. A ratio of 100% indicates that the bank lent $1 to customers for every $1 received from depositors.
At Industrial and Commercial Bank of China, the world’s largest lender by assets, LDR rose 5.67 points to 79.39% as of June 30, as total loans increased by 9.8%. Total deposits increased by 2.0% to $4.69 trillion.
Growth in bank loans and deposits in mainland China has slowed in recent months, even as the government seeks to support the economy through various easing measures, including interest rate cuts. On September 24, the People’s Bank of China took measures such as lowering banks’ base interest rates and deposit reserve ratios. In July, the central bank lowered the five-year mortgage prime rate, the benchmark for home loans, to an all-time low of 3.85%.
Still, growth in bank total assets slowed to 7.0% in July, compared with 10.1% a year ago, according to data from the National Financial Supervisory Administration. Total deposits rose 6.8% in July, compared to 10.4% a year ago.
Herrero said corporate deposits are plummeting, with negative growth at nearly 20%. However, Natixis said household savings are more stable.
The ratio of Japanese banks will rise
Analysts say LDRs are likely to rise further as demand for loans continues to be strong, as is the case with major Japanese banks.
Four Japanese banks, which rank among the 20 largest lenders in Asia-Pacific, recorded an increase in LDRs, according to Market Intelligence data. Sumitomo Mitsui Financial Group’s total net loans and advances decreased by 2.8% and total deposits decreased by 7.3%, resulting in an increase of 2.83 points to 60.25%.
Toyoki Samejima, senior analyst at SBI Securities, said, “Japanese banks’ LDRs will continue to rise as loan growth outpaces deposit growth,” and “corporate demand for loans is strong.”
Loans from Japan’s major banks, including the three megabanks, rose 3.7% in August and 4.1% in July, after increasing 4.4% in the first half of this year, according to Bank of Japan data. Bank deposits rose by 1.3% in August and 1.2% in July, after growing 1.1% in the first half, the data showed.
Tomoaki Kawasaki, an analyst at Iwai Cosmo Securities, said, “The demand for loans is increasing because companies need to raise funds for capital investment.”
