Today sees the start of Shanghai trading in the shares of Agricultural Bank of China, followed tomorrow by the bank's debut on the Hong Kong stock exchange. The immediate outlook for the stock is promising. The peculiarities of the mainland's first- day trading rules coupled with a state-orchestrated share support operation should produce a decent upward pop in the Shanghai price today.
That gain should encourage buyers tomorrow in Hong Kong, where enthusiasm has already been fired by strong first-half profit growth and figures released over the weekend indicating that the authorities have succeeded in reining in last year's runaway loan growth.
Yet despite the improvement in sentiment, there are good reasons to be wary of mainland banks, and to wonder whether the apparent health of their balance sheets is nothing but an artful illusion. According to the weekend's data, mainland banks made new loans worth 4.6 trillion yuan (HK$5.27 trillion) over the first half of the year (see the first chart). That's an increase in total outstanding loans of only 12 per cent.
Compared with the first half of last year when overall yuan loans leapt by 24 per cent, the latest figures represent a marked easing in lending, a slowdown which has persuaded many observers that Beijing's efforts to get a grip on the supply of bank credit are proving successful.
Yet there are disturbing signs that mainland banks are fudging their numbers. In order to meet their official quotas, they are disguising the true extent of their lending by repackaging large quantities of loans and selling them on to investors, which means the loans don't show up on the banks' balance sheets - or in official lending figures.
If that sounds familiar, it should. In essence, it's much the same trick that US banks used to shift subprime mortgage loans off their balance sheet by spinning them off as asset-backed securities.
Estimating how many loans have been camouflaged in this way is tricky. But according to Charlene Chu and her colleagues at Fitch Ratings in Beijing, adding disguised loans back into the published figures would bump up the net new loans made in the first half of 2010 from 4.6 trillion to 5.9 trillion yuan. That implies new lending is running almost 30 per cent above the official rate. Altogether Fitch estimates that Chinese banks have shifted more than 2.3 trillion yuan in loans off their balance sheets in this fashion.