Chinese lenders boost precious metals stock amid rising demand

The value of precious metals held by the mainland's biggest lenders surged 66 per cent from a year ago as banks lease more gold, with tighter borrowing rules making it harder to lend funds.

Precious metals held by Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China and Bank of China, the country's four biggest lenders, were worth 378 billion yuan (HK$475 billion) at the end of the second quarter, according to financial reports. The growth since last year outpaced the gain in benchmark bullion prices, which rose 7.5 per cent over the same period.

China is seeking to rein in credit by raising borrowing costs and cutting off lending to sectors considered at risk of default amid a property slump and rising number of bad loans. That is prompting banks to hold more precious metals as they expand their gold-leasing business because it is not subject to loan caps and is considered off-balance sheet lending, according to Industrial Bank.

"Gold-based financing has grown a lot in the past year," said Duan Shihua, a partner at Shanghai Leading Investment Management. "It's clear from banks' statistics that lots of companies in China still can't get enough financing."

Precious metals assets at banks are valued against the Shanghai Gold Exchange prices on the last day of the reporting period and most of the banks' holdings are in gold, said Jiang Shu, analyst at Industrial Bank.

The lenders' holdings were the equivalent of about 1,445 tonnes of gold, based on June 30 prices, up 55 per cent from the year before. That is more than the 1,054 tonnes that China's central bank has in reserves, according to World Gold Council data.

Bullion of 99.99 per cent purity, the benchmark spot contract on the Shanghai Gold Exchange, was at 261.86 yuan per gram on June 30, compared with 243.5 yuan a year earlier. It was trading at 253.9 yuan on Monday.