beyondbrics

Beijing’s attempts to slow down the rate of credit growth in China have not had much effect, if first quarter results from Agricultural Bank of China, released on Wednesday, are any guide.

China’s biggest bank by customers, which was listed last year in Hong Kong and Shanghai,  increased lending by 5.2 per cent during the first quarter of  2011, according to an HKSE filing.

This happened in the same three months as Beijing was busy raising reserve requirements – the share of their deposits banks must park at the central bank – with three increases in the period and a fourth coming this week, after six hikes during 2010.

China, of course, is trying to pull off a tricky balancing act. “Beijing has conflicting priorities,” Philip Poole, head of investment strategy at HSBC Global Asset Managament, told beyondbrics. “It is trying to support domestic consumption as part of global rebalancing, which means reorienting lending from corporates to consumers. But at the same time it is trying to cool the economy.”

AgBank’s lending remains heavily skewed towards the corporate sector: corporate loans totalled RMB3,789bn during the first quarter, compared to RMB1,237bn in retail loans.

And the 5.2 per cent quarterly increase in lending is accompanied by  a much bigger annual increase in net interest income, from (an unaudited) RMB53.5bn in the first quarter of 2010 to RMB70.5bn this year.

The rapid rise in net interest income and in fee income gave AgBank a healthy 36.4 per cent increase in net profits compared to the first quarter of last year.

Will Beijing allow this to go on? Poole believes China’s leaders do have the political will to take unpopular measures. “During the [global economic] crisis the focus was on employment, especially given the continuing high rate of migration from rural to urban areas. But now the focus has shifted and inflation is the overriding concern.”

But AgBank is not the only lender doing well. Industrial and Commercial Bank of China – the world’s biggest bank by profits – is expected to announce a 23 per cent increase in net profits during the first quarter on Thursday; China Construction Bank Corp is expected to report a 25 per cent increase, according to a Bloomberg survey.

Investors liked the news from AgBank – its shares closed up 0.7 per cent in Hong Kong.

Related reading:
China lifts banks’ capital targets, FT Alphaville
Keen appetite for Hong Kong’s dim sum bonds, FT
China’s shipyards brace for downturn, FT
China broadens stress tests for banks, FT
Chinese finance: A shadowy presence, FT