China: Banks To Raise RMB450 bn Of Debt29 April, 2011, 14:56. Posted by Zarathustra
Tags: Banks, Bonds
21 CBN reported that 7 Chinese banks may raise money via bank bonds of up to RMB447.6 billion. The 7 banks included Bank of Communication, Minsheng Bank, China Merchant Bank, Bank of China, etc. Out of the 7 of these banks, 6 of them will raise capital from the Hong Kong RMB bond market (the only one that has shown little interest in Hong Kong is Bank of China).
The interesting thing is that, according to the report, that the money raised from these bonds is not counted towards the reserve requirement ratio and loan-to-deposit ratio. It seems to suggest that banks can basically lend all the money raised through this channel.
Why banks have to raise money so desperately? After the excess credit growth after the subprime crisis, banks now find themselves having loan-to-deposit ratios much higher than they feel comfortable. With monetary tightening, banks now have less money to lend to meet demand, and they find it difficult to attract deposits. The attractive (yet fishy) nature of these bonds makes it a preferred way to raise money. And they would like to raise money from Hong Kong because interest rates are much lower here in Hong Kong than in China.
I think this is a manifestation of the impact of continuous monetary and credit tightening in China. After multiple RRR hikes, the RRR is now at historical high, limiting the amount of money banks can lend. For Hong Kong, again, this is the manifestation of how monetary tightening in China is spilling over to Hong Kong. I should reiterate my warning that interest rates in Hong Kong does not necessarily move with that of the United States. Currently, for the first time, the monetary policy in China actually matters more than the United States.