As China’s economy struggles to get back on track following the COVID-19 pandemic, its banking sector has come under mounting pressure, with smaller, rural banks bearing the brunt. The Chinese government has thus decided to inject 320 billion yuan ($47 billion) of public funds into small and midsized banks to shore up the economy and sustain lending. Reports have noted that capital injections will be funded through proceeds raised from infrastructure bonds. The China Banking and Insurance Regulatory Commission (CBIRC) and the Ministry of Finance will grant the funding in bond-issue allotments to specific Chinese regions through August.
Lenders also face a growing mortgage boycott as homebuyers refuse to pay mortgages on unfinished projects, which continue to be delayed. This has exacerbated problems in China’s real-estate sector, raising concerns over the possibility of a systemic financial crisis. The problems began in 2020 after Beijing began cracking down on excessive borrowing by real-estate developers to curb their mounting debt levels and rein in accelerating house-price inflation. But today, fears are growing that the mortgage boycott could send banks’ bad loans to unsustainable levels, dampening sentiments further in the property sector, according to analysts.
According to data from the Bank of Japan (BoJ), the total outstanding loans held by the country’s four main categories of banks, including credit unions, reached an all-time high of 588.232 trillion yen ($4.36 trillion) in July. The annual 1.8-percent rise in lending followed a 1.2-percent gain in June that largely reflected rising fund demand for property investment, mergers and acquisitions, a BoJ official confirmed. Lending was also boosted to meet rising raw-material costs and demand as a result of the economy reopening following the lifting of pandemic restrictions. The data showed that total lending by major and regional banks rose by 2.1 percent in July from a year earlier, the fastest annual growth since May 2021.
A recent analysis by Fitch Ratings found that South Korea’s four major banks—Kookmin Bank, Shinhan Bank, KEB Hana Bank and Woori Bank—can maintain a broadly stable profile in the near term, despite the potential for additional rate increases and an economic downturn. Fitch added that solid income growth and sound asset quality would likely be supported by the lenders’ strong domestic banking franchises and improved risk profiles. “Persistent inflationary pressure may prompt the Bank of Korea to raise its policy rate further in tandem with the US Fed even after a 175bp cumulative hike since August 2021 to 2.25 percent by July 2022,” the ratings agency noted, projecting that supply-chain disruptions and high commodity prices will slow Korea’s gross domestic product (GDP) growth to 2.4 percent in 2022 and 2.5 percent in 2023 after a strong rebound of 4.1 percent in 2021.
Indonesian banks performed better than expected during the first half of the year. Loan disbursements at the three largest Indonesian lenders—state-owned Bank Mandiri and Bank Rakyat Indonesia (BRI) as well as Bank Central Asia—grew between 9 and 14 percent annually during the period, thus outperforming initial January targets of at least 8 percent. Central bank data showed that total bank-loan issuance was also at least 10 percent higher year-on-year in June, double the growth rate recorded in December. The central bank has thus upgraded its loan projections for the year to between 10 and 11 percent from its previous estimate of 6 to 8 percent.
According to the latest stress tests conducted by Fitch Ratings in mid-July, a slowdown in the local housing market should not materially impact Australia’s major lenders. Nonetheless, Australian households are currently “highly leveraged”, with the debt-to-income ratio at a record 143.7 percent in March and a large portion of mortgages on variable interest rates. As such, a sharp rise in interest rates would leave borrowers vulnerable. “National house prices fell in May 2022 amid expectations of further interest-rate hikes in 2022 and 2023,” the Fitch report noted. “Nonetheless, our base-case assumption is that continued economic growth and low unemployment will cushion housing-market stress. Banks also have substantial buffers and lenders’ mortgage insurance that should limit losses.”
The Reserve Bank of Australia (RBA) has become the latest major central bank to confirm that it is exploring the possibility of introducing a central bank digital currency (CBDC). Along with the Treasury and other important agencies, the central bank will oversee research exploring the potential economic benefits of such a currency for the country. To that end, a research paper will be published in the coming months, with the central bank adding that the research will be presented in the context of Australia already having “relatively modern and well-functioning payment and settlement systems”.
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