1、March 24, 2010 China: Banks Gao Hua Securities Investment Research 1 March 24, 2010 China: Banks Trip takeaway II: A finer sense of numbers/risks of local govt lendingBank lending practices appear to be rational in cities we visited We met with branch managers from 6 listed banks, local businesses,
2、and local government officials, including the mayors, directors of local finance bureaus in one city and three counties in the Guangdong province last week. The cities/counties that we visited include relatively more developed Shunde district, developing Zhaoqing city/Gaoyao county, and Zhaoqing Hig
3、h Tech Development Zone. Four key takeaways from this trip include: 1) Our case studies and financial projections of cities/counties that we visited show that loan repayment risks remain manageable as long as: 1) new loans that are only backed by local fiscal revenue discontinue; and 2) GDP growth,
4、property/land prices remain stable. We would be more positive if the government introduced new regulations that require local governments to start to accrue loan repayment funds amid N/T strong land sales and fiscal revenue growth. 2) In general, banks have significantly scaled back infrastructure l
5、ending in 2010 in the cities/counties that we visited, which we believe is critical to constrain the systemic risks. While this could slow the pace of local development, the counties that we visited generally indicate that land sales should provide continued support to further development given land
6、 reserves. 3) Banks in Guangdong also confirmed improving loan pricing power in 2010 on both corporate loans and mortgages. However, like the rest of the country, pricing power gain in more developed cities appears to be modest due to higher competition. 4) Business transformation is well underway f
7、or businesses in Shunde with focus on high value-add and domestic oriented businesses. This, combined with strong domestic demand and a recovery in exports, has led to a gradual rebound in business investments and loan demand. Despite higher demand, banks remain disciplined on SME lending; full coll
8、aterals are required and LTV cannot exceed 70%. Trip supported our view on China banks Our trip supported our view that systemic risks related to infrastructure loans remain limited in the medium term, and we believe China can grow out of the problem, given strong GDP and tax revenue growth, still m
9、anageable local government debt, and the efforts of regulators to ring-fence the problems. We see good risk/reward for the Buy rated Banks under coverage at current levels. Our top picks are Buy rated CCB/ICBC H/A-shares, Industrial Bank and CNCB H-shares. WHATS IN THIS REPORT Key financials, debt,
10、land bank statistics for four cities that we visited in the Guangdong province last week. Reverse engineering: Our proforma projection through 2024 of revenue flows and debt service payment capacity for Shunde District, Zhaoqing City. KEY METRICS IN BRIEF Rmb tn (as of 09)Total banking sector loans
11、42.6New net lending in 09 10.6of which infrastructure loan 2.5Memo: total banking sector asset 78.8Memo: total banking sector profits (as of 08) 0.58Source: CBRC, Gao Hua Securities Research. KEY DIFFERENCES BETWEEN CITIES WE VISITED Rmb bn HTDZ Zhaoqing Gaoyao Shunde2009 population (mn) NA 4.0 0.7
12、2.12009 GDP (Rmb bn) 5.6 84.6 17.6 171.22009 GDP yoy growth 31% 14% 15% 14%GDP per capita (000) NA 20.9 23.5 82.72009 Fiscal revenue (ex. land sales and transfer payment)0.5 5.6 1.1 8.9Fiscal revenue yoy growth 51% 28% 32% 13%Land bank (km2) 70-80 13.3 6.7 NALand bank value at current land price 16.
13、4 15.4 7.7 750 mn/km2 Total loan balance* 3.9 5.7 2.0 20.0Loan per capita (000) NA 1.4 2.7 9.7loan as % of GDP 32% 7% 11% 10%Interest rate 5.3% 5.3% 5.3% 5.3%Fiscal revenue/interest 2.6 18.4 10.1 9.5*of the Rmb3.9bn loans to HTDZ, Rmb2.9bn has not been used and remain in the form of deposits. Source
14、: Local government websites, Gao Hua Securities Research. CCB H (0939.HK, Conviction Buy, HK$6.17); CCB A (601939.SS, Buy, Rmb5.56); ICBC H (1398.HK, Buy, HK$8.6); ICBC A (601398.SS, Buy, Rmb4.85); CNCB H (0998.HK, Buy, HK$5.58); Industrial Bank (601166.SS, Buy, Rmb35.66) Richard Xu, CFA +86(10)6627
15、-3192 | Beijing Gao Hua Securities Company Limited Beijing Gao Hua Securities Company Limited and its affiliates do and seek to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the obje
16、ctivity of this report. Investors should consider this report as only a single factor in making their investment decision. For analyst certification, see the end of the text. Other important disclosures follow the Reg AC certification, or contact your investment representative. Beijing Gao Hua Secur
17、ities Company Limited Investment ResearchMarch 24, 2010 China: Banks Gao Hua Securities Investment Research 2 We met with branch managers from 6 listed banks, local businesses and local government officials, including mayors, directors of local finance bureaus in one city and three counties in the G
18、uangdong province last week. The cities/counties that we visited include relatively more developed Shunde county, developing Zhaoqing city and Gaoyao county, and Zhaoqing High Tech Development Zone. We have summarized our key takeaways from the trip below: Mid-term risks on loans to local government
19、s that we visited appear manageable After looking at the local fiscal revenues and land bank collaterals of the cities/counties that we visited, we believe the risks of repayment to current loans are limited, as long as: 1) Chinas economic growth remains healthy; and 2) property/land prices remain s
20、table. Caveat: these cities are located in relatively developed regions. We believe it is important to control the rise in local government debt levels in the near future. The recent guidance from the government on restricting loans to local government-owned investment platforms and prohibiting futu
21、re debt guarantees by local governments is encouraging, and we believe this could help mitigate long-term loan repayment risks. In general, banks have significantly scaled back infrastructure lending in 2010 in the cities/counties that we visited, which is an encouraging sign, in our view. We believ
22、e if government could introduce new regulations that require local governments to start to accrue loan repayment funds amid N/T strong land sales and fiscal revenue growth, it could further reduce long-term debt repayment risks. State-owned banks are the primary lenders to these county-level investm
23、ent platforms that we visited given the limited branch network of shareholding banks. Given, land sales remain a key source of loan repayment in the less-developed counties, we believe a major fall in land prices resulting from a significant slowdown in GDP growth could pose a risk. Case I Shunde Di
24、strict District background: - Shunde district is located 46 km south of Guangzhou in the Guangdong province and is part of Fuoshan city. - This is a more developed county with a relatively high GDP per capita of Rmb82,700 (or US$12,160) and a stable/healthy tax revenue. - Its GDP increased 14% yoy t
25、o Rmb171 bn last year in 2009 and tax revenue was Rmb8.9 bn (excluding land sales and transfer payment) with an additional Rmb7.4 bn of income from land sales (land price for industrial use is around Rmb750mn per km2 in Shunde) in the same year. - Home appliances manufacturing, machinery, telecom eq
26、uipments, garment, furniture are the key industrial pillars for Shunde that has new but fast growing industries such as pharma, auto parts, alternative energy. - Shunde is currently experiencing an ongoing business transformation from garment-related businesses to the current industry mix. As land p
27、rices and cost of living continue to rise, the local government is focusing on transforming the county into a R total debt payment less than 15% of revenue; * The projects will focus on cash flow, but also require sufficient collateral, or ask the local Peoples Congress to put the payment of loans i
28、nto future budgets* loans are typically longer than 3 to 5 yearsBOC * Loans were lent to around 110 cities * Around 70% of total loans are concentrated in 10 big cites* Risk management in 2009 include assessing the local governments liability level, and set limits on cities total exposure* BOC will
29、limit the new loans to new projects, manage existing projects and exit some weak projects in 2010CCB * Loans to local infrastructure projects are typically roads, transportation, railway and city infrastructure projects* CCB proactively acquired many good projects loans first in 1Q09/2Q09 * since 1H
30、09, CCB prioritized loans to provincial government owned projects, and it does not lend to county level government sponsored entities except a few rich counties* Since 2H09, CCB has been raising lending standards on local infrastructure projects, including focusing on cash flow, adding more collater
31、als, etc* Average maturity of loans to local government owned entities are 5+ yearsSource: Company data, Goldman Sachs and Gao Hua Securities Research Special disclosure Goldman Sachs owns 4% or more of the total issued share capital of Industrial however, the distribution of Buys and Sells in any p
32、articular coverage group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent investment recommendations focused on either the size of the potential return or the likelihood of the realization of the return. Return potential represents
33、the price differential between the current share price and the price target expected during the time horizon associated with the price target. Price targets are required for all covered stocks. The return potential, price target and associated time horizon are stated in each report adding or reitera
34、ting an Investment List membership. Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at http:/ The analyst assigns one of the following coverage views which represents the analysts investment outlook on the coverage grou
35、p relative to the groups historical fundamentals and/or valuation. Attractive (A). The investment outlook over the following 12 months is favorable relative to the coverage groups historical fundamentals and/or valuation. Neutral (N). The investment outlook over the following 12 months is neutral re
36、lative to the coverage groups historical fundamentals and/or valuation. Cautious (C). The investment outlook over the following 12 months is unfavorable relative to the coverage groups historical fundamentals and/or valuation. Not Rated (NR). The investment rating and target price have been removed
37、pursuant to Gao Hua Securities policy when Goldman Sachs Gao Hua is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. Rating Suspended (RS). We have suspended the investment rating and price target for this stock, because t
38、here is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied March 24, 2010 China: Banks Gao Hua Securities Investment Research 11 upon. Coverage Sus
39、pended (CS). We have suspended coverage of this company. Not Covered (NC). We do not cover this company. Not Available or Not Applicable (NA). The information is not available for display or is not applicable. Not Meaningful (NM). The information is not meaningful and is therefore excluded. General
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