The Banking and Strategy Initiative

Chillin' out till it needs to be funded

China wins again! Despite monetary easing in 2012..challenges ahead

China’s monetary policy started easing just in time as manufacturing stays in contraction mode but is away from its August/November bottom at 47.4 while Europe gets deeper into trouble with a PMI score of 46.9 However monetary policy easing has not changed forecasts for a stumpy 2012 for the Large economy as Barclays capital Economist Jian Chang ( and others still look at a slow Monetary supply growth of less than 11-12% after a low 12.7% M2 growth on control measures adopted by the CBRC in 2011.

The Economic data is otherwise looking good as banks lent another CnY 562 bln in November and the Top 4 data for December is more than CnY 130 bln, implying another CnY 500 bln in December. After lending a record Yuan 7.5 tln or $1.2 Tln in 2011, banks are yet forecast to grow lending to CnY 9 tln in 2012. Local lending failures have already been hived off to some extent and banks are now carrying the rest on their Balance sheet while trying to balance requirements of the new regulation to get in line with Basel 3. CBRC has recommended a tighter 11.5% CAR for Systematically important Banks and 10.5% for others . No Tier I common requirement has been reported, unlikely as state remains the largest Equity holder in excess of 60%, a fresh infusion made to keep lending going in December..  The Core Tier I capital ratio including Primary debt would still be a high 9.5 and 8.5%. (ref: New Liquidity requirements warrant a specific 4% leverage ratio requirement as well much more than that liely to be adopted in the US/UK

The new RWA definition and denomination in the Basel 3 pact could bring requirements up by 1% on the current RWA on the balance sheet not implemented per the stringence of internal models adopted in banks in the West, in either India or China

The new CSRC regulator Guo Shuqing and CIRC boss Xiang Junbo have a tough ask on deck as Shenzen grows equal in business volumes to Hongkong on domestic demand for securities and Insurance Premiums rise to 1.43 Tln Yuan for 2011. Both report to CBRC which will likely hold off on tightening Securities, Insurance and Basel 3 regulation for banks till monetary easing reflects confidence and a likely calendar is made possible for real interest rate cuts in the Economy in the second half of 2012 (ref: reuters) Smaller banks have also reached the 75% Loan Deposit ratio limit making additional Depsits a requirement for further lending unless crossing the line does not bring regulatory blowback from CBRC making macro-prudential regulation enforcement a key challenge likely to be deprioritised by the banking regulator.

Saturday’s conference in Beijing however noted that there was a lot of laxity around in terms of management control (Insurance) and local government debt ( Premier Wen Jiabao on Local LSFs /LGVs)

For misc Dec data, also see: SMR, for social journo handling of hard landing opinion, the FT and the delay in Macro Prudential regulation at the NASDAQ site (DJ news wires)


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This entry was posted on January 9, 2012 by in Banking, China, Financial Services, Global and tagged , , , , , , , .


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