Banks Fall After China Raise Reserve Ratio by 0.5%
Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, and rivals fell in Hong Kong trading after the People’s Bank of China unexpectedly raised the proportion of deposits banks must set aside as reserves.
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ICBC dropped 2.4 percent to HK$6 as of 10:06 a.m. local time, the lowest since Oct. 7. China Construction Bank Corp., the nation’s second-largest lender, declined 2.5 percent, while Bank of China Ltd. fell 2.4 percent and Bank of Communications Ltd. lost 2.9 percent. Shares of smaller lenders also declined.
China’s central bank boosted the reserve-ratio by 50 basis points starting Jan. 18 to cool the world’s fastest-growing major economy as a credit boom threatens to stoke inflation and create asset bubbles. Economists hadn’t anticipated such a move until at least April and the policy shift may foreshadow higher interest rates and a relaxation in the nation’s currency peg against the dollar.
“The move in itself is not a surprise, but the timing is a bit earlier” than analysts had expected, Credit Suisse Group AG Hong Kong-based analysts Sherry Lin and Daisy Wu wrote in a note today. “Banks’ shares are likely to be sold off in the near term as the fear of tightening looms.”
Yesterday’s decision will help remove about 300 billion yuan ($43.9 billion) of liquidity, according to estimates by Xing Ziqiang, an economist in Beijing at China International Capital Corp. Chinese banks extended a record 9.21 trillion yuan of loans in the first 11 months of 2009, more than double the total for the same period a year earlier, according to the central bank.
New Loans
In Shanghai trading, Industrial Bank Co., part-owned by Hong Kong-based Hang Seng Bank Ltd., tumbled 5 percent to 35.02 yuan, while Bank of Beijing Co. dropped 4 percent. Shenzhen Development Bank Co. fell 3.8 percent.
The move by the country’s central bank was partly triggered by faster-than-expected growth in new loans in the first week of 2010, according to Ma Jun, the Hong Kong-based chief economist at Deutsche Bank AG.
China’s banks lent 600 billion yuan in the first week of January, the Economic Information Daily, a newspaper affiliated to the state-run Xinhua news agency, reported on Jan. 11. That compared with 294.8 billion yuan for the whole of November.
The existing reserve-requirement level for large banks is 15.5 percent, and 13.5 percent for smaller lenders. In November 2008, the central bank named ICBC, Agricultural Bank of China, Bank of China, China Construction Bank and Bank of Communication among those classed as bigger lenders for such requirements.
–Luo Jun. With assistance from Li Yanping, Paul Panckhurst, Stephanie Wong and Irene Shen. Editors: Joost Akkermans, Malcolm Scott.
To contact the reporter on this story: Jun Luo in Shanghai at +86-21-6104-7021 or jluo6@bloomberg.net
To contact the editor responsible for this story: Philip Lagerkranser at +852-2977-6626 or lagerkranser@bloomberg.net
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