Foreign and Hong Kong banks’ mainland China lending hits record high

Foreign bank’s exposure to mainland China stood at US$1.89 trillion – a record high – at the end of the first half of this year, according to data from ratings agency Fitch.

Tighter liquidity on the mainland, easy liquidity in Hong Kong and Chinese corporates’ growing global ambitions contributed to a rebound after a slower 2015 and 2016, Fitch said.

Another factor for this year’s high was international banks looking to mainland China for growth, although the ratings agency said a rapid expansion in such lending would bring higher risks with it.

“It is hard to say whether the rewards for foreign banks of lending more on the mainland outweigh the risks, but we are less sceptical now than we were a few years ago, when banks hadn’t experienced any major losses and much of the lending was to companies hoping to take advantage of an appreciating yuan,” said Sabine Bauer, senior director, financial institutions at Fitch.

This strategy came to a sharp halt in 2015, when the yuan stopped appreciating against the US dollar and started to fall in value. “The unwinding of some of that lending is part of the reason for the slow down in foreign banks’ mainland China exposure in 2015 and 2016,” Bauer added.

“This latest high point in lending is driven more by companies’ real needs.”