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"Golden opportunity" for Chinese lenders in U.S. (2)


08:29, August 01, 2012

Just five years ago, Chinese banks were unlikely to lend to US corporations, said Brian Caplen, editor of the UK financial magazine The Banker.

"Chinese banks still are able to extend credit, while US and European banks incurred so many bad loans during the crisis that they need to recapitalize," Caplen said. "Their capacity to lend is less now."

Chinese institutions, as measured by The Banker, gained a bigger slice of global bank profits after the economic downturn.

They now generate nearly 30 percent of those profits, compared with just 4 percent in 2007, according to a worldwide survey of 1,000 banks the magazine released in early July.

China's Big Four banks - ICBC, China Construction Bank Corp, Bank of China Ltd and Agricultural Bank of China Ltd - were among the banks with the five largest annual profits on the Top 1,000 World Banks 2012, a list compiled by The Banker. ICBC led the pack.

The authors of the survey wrote that China, the world's second-biggest economy, is entering a period when its banking system will attain dominance.

Among world banks, ICBC was ranked third by The Banker in a list of banks with the largest amounts of Tier 1 capital. That was the highest spot ever accorded to a Chinese bank.

Tier 1 capital is a measure of a bank's financial soundness and ability to withstand unexpected losses. It consists of capital held in common stock - equity that can't be redeemed at the option of shareholders - as well as retained earnings, or reserves.

"One big factor of their huge profits is the domestic situation in China," Caplen said.

"The economy was growing at 8 to 9 percent a year. Property prices were rising, and companies were expanding."

But the banks' business outside China is still quite small compared with what they do inside the country. Some experts said it remains to be seen how greatly Chinese banks will become "internationalized".

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