Foreign banks continue selling stake in Chinese lenders due to uncertainties of the Chinese economy.
Sources said recently that HSBC would sell an eight percent stake in Bank of Shanghai, a city-level commercial lender in the Chinese mainland, over the following few months and the stake was estimated at about USD 800 million. Prior to this, it sold a 15.6 percent stake in Ping An Insurance (Group) Company of China, Ltd. (SHSE: 601318 and SEHK: 2318) and through the sale, it quit the Chinese insurance giant.
In addition, Bank of America (BOC) sold a large part of the stake in China Construction Bank (CCB, SHSE: 601939, and SEHK: 0939), the biggest real estate and mortgage lender in the market, last year. Goldman Sachs sold some stake in Industrial and Commercial Bank of China (ICBC, SHSE: 601398, and SEHK: 1398), the biggest commercial lender in the market, this January. Both BOA and Goldman Sachs said that a major reason for them to do so was that the stake in those Chinese commercial lenders helped them little in fueling expansion in the market currently.
Available information shows that foreign banks cashed in about HKD 223 billion through selling stake in Chinese lenders in recent four years and that cashed in by BOA, Goldman Sachs and Temasek each was HKD 143.3 billion, HKD 26 billion and HKD 28 billion.
There have been signs that foreign banks are quitting the Chinese market, beginning selling stake in Chinese institutions. And in line with industry observers, there are two major reasons. One is that they have made a killing through investing in those institutions and the other is that their expectation on the Chinese market is not clear. Notably, the Chinese economy continues slowing down and even if the economy can recover within a short period of time, Chinese commercial lenders will see both profitability and profit fall due to accelerated interest rate marketization as well as the economic slowdown cycle.
Leading global credit rating agency Fitch lowered the long-term local currency credit rating of China to A+ from AA- on April 9 with a stable outlook, citing financial risks from rapid credit expansion and the rise of shadow banking activity. And on April 23, banking stocks in the market jointly dropped 3.1 percent and hurt by this, the Shanghai Composite Index fell 2.57 percent on the day, a new high in recent one month. And in line with industry observers, this should be mainly attributed to the quit of foreign capital.
