Learning to lend beyond the industrial blacklist
Mainland banksare grappling with income losses from interest rate deregulation and a much narrower field of suitable loan candidates
To whom to lend - this is a tough question for mainland banks.
The blacklist of industries subject to lending controls has grown longer, thanks to their rampant expansion in the past few years, fuelled by excessive liquidity after the 2008-09 global financial crisis.
Among those listed by banks in their financial reports last week were many industries grappling with overcapacity: steel, cement, coal, chemicals, plate glass, wind-power equipment, polysilicon and shipbuilding. If local government financing vehicles and property developers - two sectors singled out by regulators for mounting default risk - are excluded, the number of suitable candidates for loans has substantially narrowed.
Mainland banks, which are used to lucrative interest rate spreads contributing the bulk of their income, are being forced to transform by the industrial headwinds and unfolding deregulation of interest rates.
The Ministry of Railways, among the mainland's biggest borrowers, ceased to exist under the restructuring scheme Beijing approved last month.
Liu Shiyu, vice-president of the People's Bank of China, said total railway lending from banks amounted to 1.4 trillion yuan (HK$1.73 trillion) at the end of last year. The newly established China Railway Corp has taken on the ministry's debt.
Without the endorsement of a ministry, new loans to the sector would warrant more meticulous consideration, given the poor operating results of the rail business, bankers said.
