On Friday Sept 24, The Edge Singapore reported that none of the local banks have any exposure to China Evergrande Group. However, their shares could be impacted should there be fund redemption or a market sell-off. Among the local banks’ shareholders are funds and ETFs managed by BlackRock, which is also exposed to Evergrande's bonds.
A recent Citi report appears to believe that the Singapore and Hong Kong banks have the largest Greater China exposures. “While Hong Kong banks are trading near 2020 lows, Singapore banks in Aug 2021 were close to all-time price highs, and hence we view that they are at risk in a systemic sell-off,” Citi says.
Among the banks at risk of a sell-off, Citi suggests, is DBS Group Holdings because it has performed better than the other local banks and the Hong Kong banks. In Taiwan, Citi says Chailease International Finance Co has the highest exposure to mainland China which accounts for 36% of its loans. Fubon Bank has more exposure than its Taiwan bank peers through its China and Hong Kong units, Citi adds.
Citi goes on to say that Thai and Malaysia banks have single-digit China exposure in percentage terms. However, Hong Leong Bank derives 21% of its profit before tax from China bank associate. Interestingly, The Edge Malaysia reported that Hong Leong Bank is one of three banks that are interested in Citi’s Malaysia consumer bank. The other two are Standard Chartered Bank and United Overseas Bank.
See also: Local banks have no direct exposure to Evergrande
Among the Chinese banks, Citi says: “Our proprietary analysis on banks' loan exposure to high-risk developers suggest developer credit risk is among the highest for China Minsheng Bank, while among the less vulnerable includes Bank of Nanjing.”
See also: HSBC urges shareholders to vote against push to rejig structure
Based on DBS 1H2021 financial data Hong Kong and Greater China account for 24% of group assets, 28% of group loans (overall NPL ratio of around 0.6%, loans split two-thirds Hong Kong and one-third rest of Greater China, including Taiwan) and 22% of group profit before tax (PBT). DBS recently acquired a 13% stake in Shenzhen Rural Commercial Bank for around $1 billion.
Oversea-Chinese Banking Corp’s 1H2021 financial report shows that Greater China accounts for 16% of group assets, 26% of group loans (with an overall NPL ratio of 0.5%) and 24% of group PBT including associate Bank of Ningbo in which it holds 20%. Out of its Greater China loans of $70 billion, only $5 billion are direct mainland China exposures, with $34 billion in Hong Kong, $24 billion offshore financing and the rest in Taiwan and Macau.
OCBC’s mainland China loan exposures are mainly to network customers such as Singapore-based property developers which have expanded into China.
UOB’s 1H2021 financial report shows that Greater China accounts for 16% of group loans and 10% of group PBT. The mainland China exposure totals S$27.3bn or 6% of group assets, including direct bank exposure of $12.9 billion, and non-bank exposure of $11 billion. Its Hong Kong exposure totals $38.2 billion (9% of assets), including direct bank exposure ($2.9 billion) and non-bank exposure ($32 billion). Bank exposures are usually trade-finance related to China’s top five domestic banks, its three policy banks, and foreign banks in Hong Kong. Non-bank exposures in China are to top tier SOEs, large local corporates and foreign investment enterprises. The NPL ratio is 0.4%.