Mainland China banks' loan-to-deposit ratios rise as deposits lag loans

Loan-to-deposit ratios climbed at most large mainland Chinese banks in the 12 months to June 30 as loans outpaced deposits.

Ten of the 13 mainland Chinese banks saw their loan-to-deposit ratios (LDRs) climb as of June 30 versus a year ago, with China Everbright Bank Co. Ltd. posting the biggest yearly increase at 9.17 percentage points (pps), S&P Global Market Intelligence data shows. The bank's LDR clocked in at 99.78% as of June 30 after its total net loans increased 3.6% to $538.20 billion from a year prior. The lender's total deposits contracted 5.9% to $539.40 billion in the same period.

"The overall deposit base of banks is shrinking, which is negatively impacting banks' ability to generate interest income and profitability," Alicia Garcia Herrero, chief economist for Natixis CIB at Asia-Pacific, told Market Intelligence.

LDR, used to assess a bank's liquidity, is calculated by dividing a bank's total amount of loans by its total deposits over the same period. A ratio of 100% indicates a bank loaned one dollar to customers for every dollar received from its depositors.

At Industrial and Commercial Bank of China Ltd., the world's largest lender by assets, the LDR increased 5.67 pps to 79.39% as of June 30 due to a 9.8% expansion in total loans. Total deposits rose 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 rate cuts. The People's Bank of China on Sept. 24 cut its benchmark interest rate and reserve requirement ratio for banks, among other measures. The central bank in July reduced the five-year loan prime rate — considered the benchmark for mortgages — to a record low of 3.85%.

Still, growth in total banking assets decelerated to 7.0% in July versus 10.1% a year ago, according to data from the National Financial Regulatory Administration. Aggregate deposits grew 6.8% in July, versus 10.4% a year ago.

Corporate deposits are plummeting, with a negative growth of close to 20%, said Herrero. Household deposits, however, are more stable, according to Natixis.

Japanese banks' ratios to rise

Similarly, large Japanese banks are likely to see their LDRs rise further as loan demand remains strong, analysts said.

Four Japanese banks, ranked among the 20 biggest lenders in the Asia-Pacific, logged increases in their LDRs, Market Intelligence data shows. Sumitomo Mitsui Financial Group Inc. saw an increase of 2.83 pps to 60.25%, with a 2.8% decline in total net loans and a 7.3% drop in total deposits.

Japanese banks' LDRs "will likely continue to rise as growth in loans will outpace that of deposits," said Toyoki Sameshima, a senior analyst at SBI Securities Co. "There has been strong demand from companies for loans."

Loans at major Japanese banks, including the three megabanks, grew 3.7% in August and 4.1% in July after expanding 4.4% in the first six months of the year, according to data from the Bank of Japan. Deposits at the banks edged up 1.3% in August and 1.2% in July, after growing 1.1% in the first half, the data shows.

Demand for loans is growing as "companies need to raise funds for their capital spending," said Tomoaki Kawasaki, an analyst at IwaiCosmo Securities Co.