JPMorgan Reduces Stake in China Merchant Banks amid Chinese Banks Sell-off; Foreign institutions expressed concerns over surging credit and non-performing loans in Chinese banking industry as well as an economic slowdown

JPMorgan Reduces Stake in China Merchant Banks amid Chinese Banks Sell-off

09-17 12:10 Caijing

Foreign institutions have frequently expressed concerns over surging credit and non-performing loans in Chinese banking industry as well as an economic slowdown.

JPMorgan Chase & Co. has lowered its stake in China Merchants Bank in the latest sell-off of Chinese banks amid worries over deteriorating bank assets in a slowing economy. JPMorgan reduced its long position in the H shares of the bank from 8.29 percent to 7.79 percent last week by unloading 23million shares at HK$ 15.06 per share on average, the Hong Kong Stock Exchange’s disclosure of interests information showed Monday.The disposal came days following a research report by the investment bank suggesting investors sell medium-sized Chinese banks and accumulate large state-owned ones, including Industrial and Commercial Bank of China (ICBC) and China Construction Bank (CCB).

JPMorgan said structural improvements or loosening monetary policies are needed for Chinese banks’shares to keep the upward trend which it believed would be hard because neither of the two factors exists.

Bank of American, however, is selling its entire remaining stake in CCB for up to $1.5billion, marking the end of an era for the Wall Street banks the piled into major Chinese banks in the last decade in hopes of having an edge in China, Insider Monkey said.

Bank of America is the last of the major American banks that are selling out of the big Chinese banks they bought into before those banks went public in Hong Kong, a time when China and Chinese lenders were booming.

These banks, most recently Goldman Sachs Group Inc., have been disposing of their Chinese bank stakes since the financial crisis five years ago, raising billions of dollars in the process.

Analysts said the Basel III which requires banks to narrow down their balance sheet and business scope, as well as worries over deteriorating Chinese bank assets and a pick-up in China’s interest rate liberalization are the most important reasons behind the sell-off.

Foreign institutions have frequently expressed concerns over surging credit and non-performing loans in Chinese banking industry as well as an economic slowdown.

Standard ＆Poor’s predicted NPL ratio in Chinese banks is likely to rise to as high as 3 percent by the end of the year from 1.6 percent last year.

Half-year earnings reports showed NPL ratio for the Agricultural Bank of China at 1.25 percent, 0.99 percent and 0.93 percent for China Construction Bank and Bank of China, respectively.