China midsize banks' loan books shrink in Q3 amid Beijing's infrastructure push

Most midtier commercial banks in China saw their loan book shrink in the third quarter, as households and the private sector were reluctant to borrow amid an uncertain economic outlook.

China's largest state-owned commercial banks, the key financiers of large-scale infrastructure projects, continued posting loan growth, albeit in the low single digits.

The divergence in the banks' lending business reflects Beijing's attempt to revive growth of the world's second-largest economy through funding infrastructure projects, mostly carried out by state-owned companies and local governments. Demand for mortgages and private-sector lending is likely to remain soft in the near future, analysts said. The soft lending growth amid a slowing economy resulted in a wide range of loan-to-deposit ratios of Chinese lenders, which are also among the 20 largest banks in Asia-Pacific in terms of total assets, in the three months ended Sept. 30.

"Demand for retail loans remained weak due to slowing economic activities, a struggling property market and the zero-COVID policy," said Iris Tan, senior equity analyst at Morningstar. "We expect retail loan demand to remain under pressure in the coming quarters."

China's gross domestic product in the third quarter expanded 3.9% year over year, better than 0.4% in the previous quarter, but still short of the nation's full-year target of 5.5%. Disruptions related to the government's approach to the pandemic, falling demand for mortgages and construction loans amid the ongoing debt problems with many property developers and weakening global trade are likely to continue weighing on China's economic growth in the near future, analysts said.

China Minsheng Banking Corp. Ltd., a midtier commercial bank, posted a 7.65% year-over-year contraction in its total net loans in the third quarter, according to S&P Global Market Intelligence data. It was followed by Shanghai Pudong Development Bank Co. Ltd., whose loan book shrank 6.67% year over year, and Hua Xia Bank Co. Ltd., whose total net loans were down 4.97%.

The three banks reported loan-to-deposit ratios of above 100% as of Sept. 30, among the highest in the region's top 20 lenders.

Meanwhile, Agricultural Bank of China Ltd.'s total net loans grew 4.05% during the same period. China Construction Bank Corp.'s loan book expanded 2.68%, Industrial and Commercial Bank of China Ltd.'s was up 1.71% and Bank of China Ltd.'s rose 1.39%. Their loan-to-deposit ratios ranged between 74.12% and 85.06%.

Elsewhere, all three Japanese megabanks reported modest gains in their loan-to-deposit ratios, although their ratios were among the lowest in the group, as their deposits contracted more quickly than their outstanding loan balances partly due to a weakening yen.