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Loan growth outpaces deposits at large Asian banks on COVID-19 liquidity support

Loan growth outpaced deposits at most of Asia-Pacific's 20 largest banks in the quarter ended June 30 as authorities' expanded liquidity support to banks to help cushion the impact of the COVID-19 pandemic and economies, especially China, started to open up in the period.

China's Ping An Bank Co. Ltd. led the pack with an 11.2% rise in its loan-to-deposit ratio, followed by China Minsheng Banking Corp. Ltd. and Bank of Communications Co. Ltd. with 4.2% and 3.7% increases, respectively.

Overall, the loan-to-deposit ratio at 13 out of the 20 largest banks in the region grew year over year in the quarter ended June 30, while six lenders logged declines, according to data compiled by S&P Global Market Intelligence. Investors often use the measure to assess the liquidity and growth potential of banks, though a surging loan-to-deposit ratio may indicate that the bank may not have enough liquidity to cover unforeseen fund requirements such as loan losses and deposit withdrawals by customers.

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Banks' credit growth is a reflection "of how authorities are using banks as transmission agents for economic and monetary policies," said Nikita Anand, credit analyst at S&P Global Rating. Governments have provided a lot of liquidity support to banks so they can lend to critical industries and support borrowers, she noted.

"A good example would be MSME [micro, small and medium-sized enterprises] guarantee program, which seems like a common theme across the region where banks' lending to MSME carries partial or full guarantee from the government," Anand said.

Credit growth at banks has also depended on how individual economies have opened up in the second quarter, she said. For example, China's economy expanded 3.2% year over year in the second quarter, reversing a 6.8% contraction in the March quarter. HSBC economists expect growth to accelerate to 5.4% year over year in the third quarter and 6.2% in the fourth quarter, with full-year growth arriving at 2.4%, contingent on further policy easing.

While deposit growth has been higher due to low consumer spending and utilization from small businesses, Anand expects the trend to slow "as economic activity picks up gradually." China Everbright Bank Co. Ltd., China Merchants Bank Co. Ltd., Mizuho Financial Group Inc. and China Minsheng Banking Corp. Ltd. reported double-digit growth in their second-quarter deposits year over year.

On the other hand, Hongkong & Shanghai Banking Corp. Ltd., Commonwealth Bank of Australia and China Everbright Bank saw muted loan growth in the period: 0.26% and 0.60%, respectively, for the latter two. JAPAN POST BANK Co. Ltd. saw the steepest year-over-year jump in net loans, at 44%, while fellow lender, Norinchukin Bank, was the only bank on the list to report a decline of 2.13% in its total net loans.