Chillin' out till it needs to be funded
As per the conference last weekend, Banking and insurance regulators are not likely to put on the planned strong regulation on Basel 3 advice or otherwise in limits as the slow down is uncomfortably close. As also mentioned in our last analysis, however today’s economic performance score at 8.9% of GDP is hardly the low number China was looking at for DEcember and it may well be that recovery is well underway by the second half of the year, and loosening of bankpolicy may take the same slow path as in India making further RRR cuts or new rate cuts unlikely to come regularly, limited to 100-125 bp for the year.
However the reform process may still be on track under Shang Fulin
Adding stress tests and solving the LGFV bad asset impact
In last reviews China Banking regulatory committee chairman Shang Fulin, who recently moved from the CSRC position, made clear that priorities for China include adding stress tests as part of the regime. Other regulators stressed on the importance of China’s banks growing internationally to support the Yuan trade and the good report cards of Foreign banks in China with a 250% provision coverage ratio and a 18% CAR. Also the 2012 Credit target is likely to be as much as CnY 9 tln after the 2011 target of CnY 7.5 Tln was crossed by a good 400 bln Yuan with banks spent on their 75% Deposit Lending Limit
China’s banking system assets across 3679 institutions therefore add to CnY 95Tln or $15.1 tln at the end of 2010 from the earlier CBRC report growing to nearly $20 Tln this year, with the Top 4 still carrying $10 tln or Yuan 60 Tln in assets. LGFV assets in the system will add $2 tln to this figure as that CnY 12 tln is not counted in balance sheet assets til 22010 and though banks were directed to, they may be awaiting completion of capitlal infusion exercises in December before they are added back to the Balance sheets. If one third of these LGFV’s do go bad( thrice the anticipated scenario) then bad assets increase by $660 bln or less than 4% of the banking assets
Razor thin Capital Management
Shang Fulin also pointed to banks’ lack of capital management with larger banks also near barely 9% in Core Tier I capital ratios, a strong reform target of the regulator thought hey will not be pushing their stricter version of Basel 3 liquidity and capital requirements in the first 2 quarters of 2012