Equities issues urged to reduce banks' loan load
MARK O'NEILL in Beijing
An expansion of the shareholding system is the only way to reduce the risk of mainland banks squeezed between too many deposits and too many bad loans.
So argued a front-page article in yesterday's Economic Information Daily, part of a heated debate ahead of the Communist Party's 15th congress this autumn over how to reform the country's ailing state companies.
Most argue that Beijing must allow a bigger role for private, institutional and foreign investors and a shrinking of the state sector.
Mainland banks had earned the trust of the public and in normal circumstances would not face panic withdrawals, but their potential danger was serious, the newspaper said.
This was because they were caught between individual depositors to whom they had to pay interest and state company creditors which did not.
Individuals have deposited 4.5 trillion yuan (about HK$4.17 trillion) and US$30 billion in foreign currencies in banks and in addition hold 600 billion yuan in cash. Payment of interest on the yuan deposits is 300 billion yuan a year.
There is so much money that the banks cannot lend it all. Between 1991 and last year, these deposits increased an average annual 32.4 per cent, but bank loans rose only 26.2 per cent a year.
Until it cut interest rates twice last year, the rates banks were paying on these deposits were higher than they were receiving on loans.
In fact, the banks receive only a portion of the interest they should on the loans.
Last year, they received 134.16 billion out of the 468 billion yuan, or 29 per cent, they should have received.
This year, they should receive 752.7 billion yuan in interest.
The article argued that the only way out of this vicious circle was for companies to seek finance directly from the capital markets through issuing shares.
Another way to reduce the excess amounts of money going into the banks was to give individuals more investment options, such as insurance, bonds and real estate, it said.