Hong Kong Bank

China Banks' Outlook May Be Souring on Loans

July 5 (Bloomberg) -- Venkatraman Anantha-Nageswaran, the Singapore-based global chief investment officer at Bank Julius Baer & Co., talks about the outlook for global stocks. Anantha-Nageswaran also discusses the U.S. economy and Federal Reserve monetary policy, the outlook for oil, and China's economy and local government debt. He speaks with Rishaad Salamat on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

June 2 (Bloomberg) -- Mike Werner, an analyst at Sanford C. Bernstein & Co., talks about debt of China's local governments and implications for the country's banking industry. China plans to shift as much as 3 trillion yuan ($463 billion) of debt off of local governments, reducing the possibility of defaults that could threaten stability, Reuters reported yesterday, citing unidentified people. Werner speaks in Hong Kong with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Chinese banks’ loans to local governments are about 3.5 trillion yuan ($540 billion) more than the national auditor’s estimate, and the industry’s credit outlook could decline, Moody’s Investors Service said.

“The Chinese audit agency could be understating banks’ exposure to local governments,” Yvonne Zhang, a Moody’s analyst in Beijing, said in the report today. The “apparent absence of a clear master plan to deal with this issue” is likely to exacerbate problems and lenders may be left to manage a portion of the souring loans on their own, it said.

Bank shares fell and bond risk rose on concern that the banks will be unable to absorb losses on defaults should property prices drop. Moody’s estimates that local governments’ debt is about a third more than the audit office’s findings last week of 10.7 trillion yuan. Non-performing loans could reach as much as 12 percent of total credit, it said.

“This type of negative news will dampen sentiment on the outlook of Chinese banks, particularly on small and mid-sized Chinese banks,” said Banny Lam, an associate director at CCB International Securities in Hong Kong. “The pressure may ease when the Chinese government unveils more details on how these loans could be treated.”

China ’s three biggest banks dropped in Hong Kong trading. Industrial & Commercial Bank of China (601398) Ltd., the world’s most profitable lender, fell 0.5 percent to HK$5.93, reversing earlier gains of as much as 0.7 percent. China Construction Bank Corp. (939) shed 1.2 percent while Bank of China Ltd. (3988) lost 0.3 percent.

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July 05, 2011, 6:56 AM EDT

By Anna Kitanaka and Shani Raja

July 5 (Bloomberg) — Asian stocks fell as Chinese banks declined after Moody’s Investors Service said mainland lenders may hold more problem loans on their books than had been anticipated.

Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, fell 0.5 percent in Hong Kong. National Australia Bank Ltd. slid 1.1 percent in Sydney after the Reserve Bank of Australia said the nation’s growth may be weaker than previously forecast. 77 Bank Ltd., a Japanese lender based in the area worst hit by the March 11 tsunami, advanced 1.6 percent after Nomura Holdings Inc. said it was bullish on regional banks. Shimao Property Holdings Ltd. gained 4.9 percent in Hong Kong after saying sales rose.

“China remains at the forefront of investors’ minds given its increasingly large contribution to global growth,” said Tim Schroeders, who helps manage $1 billion in global equities as a portfolio manager at Pengana Capital Ltd. in Melbourne. “Any slowdown in the rate of growth has heightened flow-on effects to growth expectations, not only in China but globally.”

The MSCI Asia Pacific Index fell 0.2 percent to 136.92 as of 7:31 p.m. in Tokyo, reversing earlier gains of as much as 0.2 percent. About an equal numbers of shares rose and fell on the 1,018-member gauge. Through yesterday, the index fell 2.6 percent from this year’s high on May 2 amid concern a slowing U.S. economy, Europe’s sovereign-debt crisis and China’s steps to curb inflation will crimp earnings.

Nikkei, Kospi

Japan’s Nikkei 225 Stock Average climbed less than 0.1 percent after falling as much as 0.2 percent. South Korea’s Kospi Index increased 0.8 percent and Australia’s S&P/ASX 200 Index slipped 0.3 percent. Hong Kong’s Hang Seng index lost 0.1 percent, while China’s Shanghai Composite index climbed 0.1 percent.

Futures on the Standard & Poor’s 500 Index climbed 0.1 percent today. Exchanges in the U.S. were closed yesterday for the Independence Day holiday.

Industrial & Commercial Bank slid 0.5 percent to HK$5.93 in Hong Kong. China Construction Bank Corp., Asia’s No. 2 lender by market value, sank 1.2 percent to HK$6.48, the biggest drag on the Hang Seng index. Bank of China Ltd. declined 0.3 percent to HK$3.86.

Chinese banks fell after Moody’s said in a report today the potential scale of problem loans at the lenders may be closer to its stress case than its base case. The ratings agency said the credit outlook for the Chinese banking industry may turn negative.

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