Key Issues
Over the last year, the crisis in the inter-bank market, and the soaring prices of oil and other raw materials,have tended to obscure several other important trends. In most of the developing world (i.e. the vastmajority of the countries whose banking industries are surveyed by BMI), lending has been growingquickly. In many emerging markets, inflationary pressures have been boosted by a rapid increase in credit.In a number of emerging markets, macro-economic imbalances are evident.
The figures on the tables above provide a snapshot of the banking sector in China and the changes thathave taken place within it over the last year. To place the figures in context, it may be useful to bear inmind certain aspects of the 59 countries whose banking sectors are currently surveyed by BMI. Acrossthis sample, the median growth in assets in local currency terms was 21.3% (in Colombia). The medianloan growth was 21.6% (in India). The median growth in deposits was 17.9% (in Brazil).
On their own, the ratios of loans to deposits, assets, and GDP mean little. However, they can provideuseful hints when combined with other data. Across the 59 countries, the median loan/deposit ratio is92.3% (in Greece). The median loan/asset ratio is 56.0% (in Poland). The median loan/GDP ratio was63.9% in India.
From Q308 we have included a new section that examines the risks associated with each country’sbanking sector in a new way. We have essentially sought to ask this question: to what extent will thebanking sector likely need to source funding from banks in the rest of the world over the course of 2008?Given that the answer is not necessarily, on its own, meaningful, we have looked at other key issues suchas the size and recent movement in the loan/deposit ratio, macro-economic developments and recentmovements in financial markets.
Two general themes pervade the banking sectors of the Asia Pacific region. The first is that the excesssavings within greater China and Japan remain enormous and are likely to grow. One expression of thiswill be the continuing growth in bank deposits that is, in absolute terms, considerably greater than thegrowth in lending. The second is that central banks have, in much of the region, been moving to tightenmonetary policy. This has already had an impact on the behaviour of the banks.
Over the last year, Latin America has been a major beneficiary of the pick up in investors’ appetites forrisk. Yields on bonds have been falling, and the compression of yield spreads has been larger than in otherparts of the world. In every one of the Latin American countries monitored by BMI, the loan/depositratios have been rising. Current account and budgets are, for the most part, balanced. Collectively, thebanks are sourcing funds from the rest of the world in order to lend to non-bank customers.
As in previous reports, we include a SWOT analysis for China. Taking a long-term view, the absolute sizeand growth potential of the banking sector are enormous. In the short-term, though, the way in which theauthorities respond to mounting inflationary pressures will be crucial for the economy and, indirectly, forthe banking sector. Loan growth has been markedly slower in China than in other developing countriessurveyed by BMI. The clear implication is that the increase in the Reserve Requirement Ratio (RRR) andother measures to constrain the growth in credit have had an impact.
Since Q108, we have calculated, on a consistent basis, a Commercial Bank Business Environment Rating(CBBER) for each of the 59 countries surveyed. The CBBER includes an assessment of the limits ofpotential returns. It does this by taking into account the size, growth potential and bancassurancepotential of the banking sector, as well as aspects of the economy in 2007. The CBBER also depends onan assessment of the risks to the realisation of potential returns. This reflects BMI’s assessments ofoverall country risk, together with the regulatory and competitive environment.
China’s overall CBBER is 70.5. The banking market structure elements of the limits to potential returnshave, unsurprisingly, a higher score than the country structure elements (87.5 versus 50.5). Conversely,the banking risks elements of the risks to the realisation of returns have a lower score than the countryrisk rating (58.3 versus 70.0).
China Commercial Banking SWOT
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