Next year's lending to set record

The amount of new yuan loans extended by Chinese banks next year is likely to equal or even surpass the record high set in 2009, the Bank of Communications Co Ltd said in a report on Wednesday.

That scenario is expected to come amid a recovering economy and an increase in the demand for credit, the bank said.

The official target for new yuan loans next year will be 9 trillion yuan ($1.4 trillion), according to the report.

"But the actual amount might exceed the target by about 600 billion yuan, up by 14.5 percent from this year," said Lian Ping, chief economist at the bank.

In 2009, lenders extended nearly 9.6 trillion yuan in loans to support local infrastructure projects after the country adopted a 4 trillion yuan stimulus plan in response to the global financial crisis.

The government then tightened its credit controls, prompting new loans to decrease to 7.9 trillion yuan in 2010 and 7.5 trillion yuan in 2011.

Lian said the demand for credit will increase next year, driven by local government investment, an increase in household income and authorities' willingness to provide more financial support to small businesses, agriculture and strategic industries.

In the first 11 months of the year, Chinese banks extended 7.72 trillion yuan in new loans.

Lian said the value of new loans this year will be as high as 8.5 trillion yuan, surpassing the official target of 8 trillion yuan.

Trying to mitigate the economic slowdown, central and local governments have been approving various infrastructure projects since the second half of this year.

In the latest step to boost investment, the National Development and Reform Commission, China's top economic planning body, announced on Wednesday that it had approved 22 projects to support development in western China, which together call for an investment of 577.8 billion yuan.

Banks are likely to see their profits continue to decrease next year because of low interest rates and the liberalization of those rates.

The report predicts Chinese lenders will see their incomes increase by only 10 percent next year and their net profits by 7 or 8 percent, Lian said.

And the deterioration in asset quality will continue.

The value of outstanding non-performing loans is expected to increase by 70 billion to 90 billion yuan in 2013, and the ratio of bad loans to total lending is expected to go no higher than 1 percent, which is what it is likely to be at the end of this year.

"Our baseline GDP growth assumption of 7 to 8 percent in 2013 continues to support our expectation that the operating environment of Chinese banks will remain stable," Moody's Investors Service said in a report last week.

Lower economic indicators, an acceleration toward interest-rate liberalization, and signs of an increase in non-performing loans are proving to be obstacles for banks, said Hu Bin, a Moody's vice-president and senior analyst.

"Nevertheless, our assessment is that Chinese banks will, by and large, weather these threats over the next 12 to 18 months."

Moody's has given a negative assessment of the asset quality of the country's banking system, and said it expects non-performing loans will deteriorate further in 2013.

"But a material deterioration during the horizon of our outlook seems unlikely now, as we have seen recent progress in dealing with significant areas of asset quality concern," Hu said.