Jul 02, 2012 03:25 PM

Merchants Bank Chief Not Worried About Bad Loans

(St. Petersburg) – Facing a slowing Chinese economy and rising risk of bad loans, the president and CEO of China Merchants Bank says the higher non-performing loan (NPL) ratio doesn't concern him, and banks should pursue a balance between risk and return.

"When the economy slows, risk with banks will surely rise. It's not a big deal," Ma Weihua said on June 22 on the sidelines of an economic conference in Russia. "We are not endlessly pursuing the reduction of the NPL ratio."

NPLs among commercial banks are likely to reach as much as 5 percent this year, the ratings company Standard & Poor's Financial Services said in a report published in April, warning of a sharp rise of credit risk. By late 2011, the NPL ratio for the entire banking industry in China stood at less than 1 percent.
Merchants Bank, the country's sixth-largest lender by assets, had an NPL ratio of 0.56 percent in first quarter of 2012, the same as its annual NPL rate in 2011.

Ma welcomed the central bank's move to liberalize the interest rate spread in June, a move that allows banks to set deposit rates as high as 110 percent of the benchmark rate and to lend for as little as 80 percent of the official rate.

"The process started gradually last year, but a full liberalization might take eight to ten years," Ma said.

Ma listed lending to small and medium-sized enterprises (SMEs) and expansion in non-interest income as key growth points for his bank, despite higher risk involved in lending to SMEs.

"When the interest spread was lowered, to maintain the same interest margin we started to increase lending to SMEs and micro companies in 2009, using higher asset prices to boost the interest rate," Ma said.

Merchants Bank, which is listed in both Shanghai and Hong Kong, has been active in international expansion. It opened a branch in New York in 2007, the first by a Chinese lender in the United States in 15 years. In 2009 and 2010, Merchants Bank bought shares of Wing Lung Bank in Hong Kong in two batches.

"Using same amount of capital, there is no place that can beat the return of the China market," Ma said. "These moves were not solely driven by profit, but to improve our global management capability. Currently, international services provided by Chinese banks cannot meet the demand from Chinese companies expanding overseas."

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