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10-07-2013, 07:40 AM
Banks must be cautious with liquidity in China, says OCBC
Published on Jul 10, 2013
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OCBC chief executive officer Samuel Tsien said his bank maintains yuan loans at less than 50 per cent of deposits, below the 75 per cent limit prescribed under commercial banking law in China. -- ST PHOTO: JAMIE KOH
OCBC says banks doing business in China will have to be more prudent with liquidity to weather any future crises.
The credit crunch on the mainland that started in the middle of last month is temporary and caught some lenders by surprise, OCBC chief executive officer Samuel Tsien, 58, said in a Bloomberg Television interview on Monday.
A money-market liquidity squeeze in China will probably cut the country's credit growth by about 750 billion yuan (S$156 billion) as its central bank continues to crack down on excessive lending, a Bloomberg survey shows.
Mr Tsien has focused on expansion in China, Taiwan and Hong Kong to offset waning profitability in the lender's home market of Singapore.
In China, "liquidity is something that cannot be counted on for certain," said Mr Tsien, who heads Asia's strongest bank, according to rankings compiled by Bloomberg Markets in May.
"You have to be prepared to have adequate liquidity to fund your assets."
China's State Council, headed by Premier Li Keqiang, pledged last week to improve the effectiveness of financial support for the economy, saying a misallocation of capital is hampering the restructuring of the economy.
The country's regulators are forcing trust funds and wealth management plans to shift assets into publicly traded securities, depriving property developers and local government finance vehicles of so-called shadow banking funds.
These central bank measures are aimed at reining in companies that borrow from banks and then lend those funds in the shadow market, Mr Tsien said. They do not target the banks or the economy, he said.
Banks, which earlier borrowed short term and lent long term to make profits from their excess liquidity, are now lending short term, said Mr Tsien, explaining that they are doing this to have funds immediately available if required.
That is why overnight rates have remained higher than average, he said.
OCBC's liquidity in China is "extremely good" because it mainly lends to state-owned enterprises, which depend on local lenders for most of their funding, said Mr Tsien.
That has helped his bank maintain yuan loans at less than 50 per cent of deposits, below the 75 per cent limit prescribed under commercial banking law in the country.
"We are more cautious," said the Shanghai-born Mr Tsien.
"But having said that, the sector that we've been focusing on in China has always been in the top end of the market."
The greater China region, which includes the mainland, Taiwan and Hong Kong, accounted for 7.2 per cent of OCBC's profit before tax last year, compared with 6.7 per cent in 2011, company filings show.
Mr Tsien also said Singapore's banks had enough safeguards to limit excessive mortgages to any one individual, even without the latest round of measures introduced by the Monetary Authority of Singapore to cool the property loan market.
Starting on June 29, the framework requires that lenders take the borrower's total debt into consideration when granting property loans.
Home loans should not exceed a total debt servicing ratio of 60 per cent and those that do will be considered "imprudent", the authority said said.
The exceptional cases where banks lent beyond that limit to individuals would be in "single-digit percentage points", Mr Tsien said.
BLOOMBERG
Background story
FOCUS ON TOP END
We are more cautious... But having said that, the sector that we've been focusing on in China has always been in the top end of the market.
- OCBC chief executive officer Samuel Tsien on why the bank's liquidity in China is "extremely good"
Published on Jul 10, 2013
0
0
0
newspostPurchase this article for republication
photobankBuy SPH photos
OCBC chief executive officer Samuel Tsien said his bank maintains yuan loans at less than 50 per cent of deposits, below the 75 per cent limit prescribed under commercial banking law in China. -- ST PHOTO: JAMIE KOH
OCBC says banks doing business in China will have to be more prudent with liquidity to weather any future crises.
The credit crunch on the mainland that started in the middle of last month is temporary and caught some lenders by surprise, OCBC chief executive officer Samuel Tsien, 58, said in a Bloomberg Television interview on Monday.
A money-market liquidity squeeze in China will probably cut the country's credit growth by about 750 billion yuan (S$156 billion) as its central bank continues to crack down on excessive lending, a Bloomberg survey shows.
Mr Tsien has focused on expansion in China, Taiwan and Hong Kong to offset waning profitability in the lender's home market of Singapore.
In China, "liquidity is something that cannot be counted on for certain," said Mr Tsien, who heads Asia's strongest bank, according to rankings compiled by Bloomberg Markets in May.
"You have to be prepared to have adequate liquidity to fund your assets."
China's State Council, headed by Premier Li Keqiang, pledged last week to improve the effectiveness of financial support for the economy, saying a misallocation of capital is hampering the restructuring of the economy.
The country's regulators are forcing trust funds and wealth management plans to shift assets into publicly traded securities, depriving property developers and local government finance vehicles of so-called shadow banking funds.
These central bank measures are aimed at reining in companies that borrow from banks and then lend those funds in the shadow market, Mr Tsien said. They do not target the banks or the economy, he said.
Banks, which earlier borrowed short term and lent long term to make profits from their excess liquidity, are now lending short term, said Mr Tsien, explaining that they are doing this to have funds immediately available if required.
That is why overnight rates have remained higher than average, he said.
OCBC's liquidity in China is "extremely good" because it mainly lends to state-owned enterprises, which depend on local lenders for most of their funding, said Mr Tsien.
That has helped his bank maintain yuan loans at less than 50 per cent of deposits, below the 75 per cent limit prescribed under commercial banking law in the country.
"We are more cautious," said the Shanghai-born Mr Tsien.
"But having said that, the sector that we've been focusing on in China has always been in the top end of the market."
The greater China region, which includes the mainland, Taiwan and Hong Kong, accounted for 7.2 per cent of OCBC's profit before tax last year, compared with 6.7 per cent in 2011, company filings show.
Mr Tsien also said Singapore's banks had enough safeguards to limit excessive mortgages to any one individual, even without the latest round of measures introduced by the Monetary Authority of Singapore to cool the property loan market.
Starting on June 29, the framework requires that lenders take the borrower's total debt into consideration when granting property loans.
Home loans should not exceed a total debt servicing ratio of 60 per cent and those that do will be considered "imprudent", the authority said said.
The exceptional cases where banks lent beyond that limit to individuals would be in "single-digit percentage points", Mr Tsien said.
BLOOMBERG
Background story
FOCUS ON TOP END
We are more cautious... But having said that, the sector that we've been focusing on in China has always been in the top end of the market.
- OCBC chief executive officer Samuel Tsien on why the bank's liquidity in China is "extremely good"