Chinese banks may see uptick in loan-to-deposit ratios despite Q3 decline

Chinese banks are likely to see a pickup in their loan-to-deposit ratios, even as robust growth in deposits and weakening lending demand from the private sector resulted in the ratio falling for most of the lenders in the quarter ended Sept. 30.

Eight of the 13 largest Chinese banks by assets saw the ratio dip in the third quarter versus a year ago, with Shanghai Pudong Development Bank Co. Ltd. logging the steepest decline of 4.62% in its ratio, S&P Global Market Intelligence data shows. China Everbright Bank Co. Ltd. led the pack, increasing its ratio 2.37 percentage points to 92.72% as of Sept. 30.

Three of the four largest Chinese banks — Industrial and Commercial Bank of China Ltd., Agricultural Bank of China Ltd. and Bank of China Ltd. — logged declines in their loan-to-deposit ratios in the third quarter, as deposits grew faster than loans. China Construction Bank Corp. was the only one among the Big Four banks to log an increase in its ratio.

The loan-to-deposit ratios of most large Chinese banks fell in 2023 on "robust deposit growth and weakening lending demands from the private sector," said Iris Tan, a senior equity analyst at US-based financial services firm Morningstar. "[State-owned] banks are expected to see a pickup in loan/deposit ratios in early 2024 as their lending is more policy driven."

China has been pushing its banks to boost lending as it seeks to achieve its 2023 growth target of about 5%. The People's Bank of China and other authorities in November set out measures, including requiring banks to set yearly lending targets and encouraging them to support the private sector, especially the real estate sector. Still, new bank lending has stayed below expectations, with new yuan loans falling by 136.8 billion yuan year over year to 1.09 trillion yuan, the central bank said Dec. 13.

Tan does not expect a dramatic increase in loan growth among China's midsize banks.

"(Chinese) midsized banks will find it more difficult to grow their loan books given that the loan demands of their key customers, both consumer and [small and medium-sized], remain sluggish," Tan said.

For the Big Four banks, growth in loans and deposits could moderate in 2024, said May Yan, head of Greater China financials for UBS.

"Looking forward, both loan and deposit growth could moderate [year over year] for Big Four banks," Yan said. "Loan growth could be closer to 10% [year over year] in 2024, on the back of continuous support to the real economy. Deposit growth could be slightly higher, due to excess savings, amid weak consumption or investment needs. As such, [loan-to-deposit ratios] could slightly edge down in 2024."

*Click here to download a spreadsheet with data featured in this story. *Click here to read our recent story on common equity tier 1 capital ratio of the largest Asia-Pacific banks in the quarter ended Sept. 30, 2023.

Other banks in the region

Large banks from other Asia-Pacific markets also saw a mixed loan-to-deposit ratio trend in the third quarter, Market Intelligence data shows. State Bank of India and JAPAN POST BANK Co. Ltd. were the only two lenders on the list with year-over-year increases in loan-to-deposit ratios, while the ratios of three other banks from Japan and two from Australia dropped.

Japan has continued with an ultralow interest rate policy compared to other governments in the region. Meanwhile, India's economy is expected to reach 7% growth in 2026 as the country continues to show robust recovery, according to S&P Global Ratings.

John Wu contributed to the report.