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Macro-economy

Cross-border loans by Chinese banks quintuple in 8 years as concerns rise

May 14, 2018


Abstract : Data shows cross-border lending by Chinese banks has increased by 500 percent since 2010. However, as Chinese banks expand overseas business layout, the issues of how to control risk and boost profitability have raised concerns.

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BEIJING, May 14 (Xinhua) -- After earlier intensive efforts made to build networks, Chinese banks have witnessed an explosive growth in their overseas business scale at present.

Data from the Institute of International Finance (IIF) shows, cross-border lending by Chinese banks has increased by 500 percent since 2010. However, as Chinese banks expand overseas business layout, the issues of how to control risk and boost profitability have raised concerns.

-- Five-fold increase in cross-border lending in 8 years

A report released by the IIF shows that the Chinese banking industry has expanded its overseas presence fiercely in recent years.

Total cross-border loans granted by Chinese banks grew 500 percent, on the basis in 2010, to hit 630 billion U.S. dollars in 2017, compared with an increase rate of 13 percent, 35 percent and 5 percent recorded respectively by their American, Japanese and European peers in the same period. China’s banking industry now ranks the eighth largest in the world in terms of cross-border lending.

As for the reasons behind such strong growth of overseas loans, Zhao Qing, a senior researcher of the Suning Institute of Finance, attributed it to two factors: firstly, domestic enterprises “going global” engage in overseas mergers and acquisitions or carry out business abroad, resulting in the increase in financing; secondly, investment in countries along the Belt and Road has grown in line with the initiative.

It is expected that the size of overseas loans will maintain high-speed growth in the future, with the support of Belt and Road related policies and closer cooperation, Zhao said.

-- Network building abroad

According to data from the former China Banking Regulatory Commission, by the end of 2017, 10 Chinese banks set up 68 tier-one institutions in 26 countries along the Belt and Road, including 18 subsidiaries, 40 branches and 10 representative offices.

In the past three years, Chinese banking institutions have participated in around 2,700 Belt and Road related projects, involving total credit of approximately 400 billion dollars, and extended loans of over 200 billion dollars, with the balance of relevant loans standing at around 200 billion dollars.

All this is underpinned by an ever faster pace of overseas “network building” by commercial banks. For example, Bank of China (BOC), which has traditional advantages in overseas business, has established institutions in 23 of such countries, ranking first by number among all Chinese banks.

By the end of 2017, BOC followed up on over 500 major Belt and Road projects and provided credit support of around 100 billion dollars to countries along the Belt and Road from 2015 to 2017.

By the end of 2017, the Industrial and Commercial Bank of China (ICBC) set up 419 institutions in 45 countries and regions, extended its reach to 20 African countries through an investment in Standard Bank Group, and established the correspondent bank relationship with 1,545 overseas banks in 143 countries and regions.

By the end of 2017, ICBC’s overseas institutions posted total assets of 358.597 billion dollars, 17 percent over the end of the previous year, and accounting for 9 percent of the group’s total assets, up 0.2 percentage points. Various loans came in at 216.36 billion U.S. dollars, up 23 percent.

Besides state-owned majors, China Merchants Bank, China CITIC Bank, Industrial Bank, Ping An Bank and Shanghai Pudong Development Bank, among others, have also considerably expanded their overseas business layout.

-- Experts warn of the risk of blind expansion

However, as business volumes grow rapidly, there is mounting concern about risk control.

Zhao Qing pointed out, overseas loans also involve risks, and in addition to credit risk, sovereign risk also has relatively great impact on banks.

“As far as overseas loans are concerned, relevant economic and legal systems in foreign countries are completely different, and the economic cycle, monetary policy and regulatory policies of each country also differ hugely from China’s. Therefore, for overseas financial products and services including overseas loans, it is essential to meet local regulatory requirements and comply with related local laws and regulations. As for project reviews and the use of credit by customers, it is important to conduct rigorous compliance audits to ensure loan security,” explained Wen Bin in detail.

Another issue that raises concern is that how Chinese banks can enhance their profitability with their overseas networks increasingly optimized, which has become a new subject to be considered by the banking industry.

Wang Zuji, President of China Construction Bank (CCB), expressed at the bank’s 2017 annual results press conference that CCB’s current overseas institutional layout could already meet the needs for the country’s strategic development, and its own need for self-development; therefore, going forward, to expand its overseas business layout, CCB would bring into fuller play the functions of its existing institutions.

(Edited by Yang Qi, [email protected])

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