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<Research>UBS: CN Govt Mulls Assisting Local Govts to Repay RMB1T Loans to POEs; Slightly Positive Impact on CN Banks; Constructive View Kept
Recommend 9 Positive 27 Negative 11 |
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UBS research report indicated that China is reportedly considering requiring policy banks (such as the China Development Bank) and state-owned commercial banks to provide financing to local governments for settling corporate debts. The first phase of this long-term plan aims to resolve at least RMB1 trillion in debts owed to private enterprises (POEs), with a target completion date set for 2027. According to UBS's previous calculations, LGFVs may have reached RMB3.5 trillion in payables by 1H24. It was estimated that over RMB1 trillion had already been settled, as UBS estimated that about 30-50% of debt restructuring proceeds were used for this purpose, and special refinancing bonds of RMB2 trillion and RMB1.8 trillion were issued in 2H24 and 1H25, respectively. UBS believed the impact of the above intiatives on banks includes a slight hike in loan volume, which is slightly positive: assuming RMB1 trillion in loans is issued over 2026 and 2027, at RMB500 billion per year, this appears insignificant compared to annual bank loan growth of RMB17-18 trillion, or just a 0.2-ppt rise in industry loan balance. Even so, UBS saw this addition as a positive factor for banks, as they currently face weak loan demand. Secondly, the overall asset quality may improve: reducing debts to enterprises (such as upstream suppliers) may help improve corporate liquidity, further stimulating corporate investment and consumer confidence, broadly benefiting bank operations. Moreover, UBS viewed that the additional loans may carry government bailout expectations, with borrowers being governments' recognized entities, still able to increase debt. Pressure on loan yield also looks limited. UBS maintained a constructive view on Chinese banks, particularly those offering high and sustainable dividends, such as ICBC (01398.HK), CCB (00939.HK), CITIC BANK (00998.HK), and China Merchants Bank (600036.SH). UBS also favored regional banks with attractive dividend yields, solid earnings growth, and high ROEs, including Bank of Chengdu (601838.SH) and Bank of Hangzhou (600926.SH). (UBS's ratings on bank stocks are in a separate table) AASTOCKS Financial News Website: www.aastocks.com |
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