Banking & Finance

A new kind of bridge loan

China’s big banks are lending like there’s no tomorrow

A new kind of bridge loan

Delta force: grand plans for a 29km bridge across the Pearl River

How do you make a grown man cry? Make him watch Marley & Me, perhaps? Or in the case of Wang Jian tell him he can lend you the money to build a bridge.

Wang told Southern Weeked that he indeed did shed tears – of joy – when his employer, the Bank of China, won the mandate to finance the bridge that will link Hong Kong with Macau and Zhuhai. The 40 year-old corporate financier described it as the “most impressive moment” of his 20 year career.

The Rmb22 billion ($3.2 billion) loan has one of the longest repayment periods on record – 35 years – and is being offered at an extremely favourable rate. It is priced at 10% below the bank’s benchmark lending rate – the lowest level China’s state authorities permit.

The loan – and its highly competitive interest rate – is the highest profile example of Chinese banks’ recent lending spree. Spurred on by the government to stimulate the economy, the banking system has generated Rmb4.58 trillion of new loans in the first quarter.

For the state’s big banks there has been a bunfight to lend to infrastructure projects – which have the double benefit of being relatively low risk, and requiring huge sums.

The Macau bridge was a particularly salivating project, and generated a lot of competition – Wang says he barely slept and couldn’t risk turning off his mobile. Straddling the three dynamic economies of Guangdong, Hong Kong and Macau, the project is likely to have a solid repayment profile. But even still, eyebrows have been raised at the generous terms it was able to secure.

Wang believes the loan will garner high returns, but adds that other criteria ought to be considered. “Economic and social benefits should be taken into account when issuing loans,” he says.

One benefit is for those driving across the bridge in future. Thanks to the financing package the likely toll for cars will be reduced to HK$100, as opposed to the HK$200 which many analysts had predicted.

Wang says the bridge will stimulate economic growth in Hong Kong, Macau and Guangdong too – as more people travel between each. This, he adds, will create spin-off demand for Bank of China’s range of services. “Interest margin gains are just part of the benefit,” he says.

With the government keen to boost growth, such a holistic approach to lending is definitely in vogue. In mid-April China Construction Bank signed a cooperation memorandum with the Chongqing municipal government to lend Rmb208 billion for the so-called Five Chongqing plan. This is basically a package of infrastructure projects whose aim is to make the city greener, healthier and also lessen traffic congestion.

Thus far the big state banks – Bank of China, Agricultural Bank, ICBC and China Construction Bank – have been at the forefront of the new lending, offering over half of the medium and long term loans. The institutions think the linkages of these loans to local governments mean that they can worry less about debts going bad. As one insider told Southern Weekly: “These are the best times that have ever occurred.”

Recent statistics from the China Banking Regulatory Commission seem to show that, if anything, the NPL situation in China is improving. At the end of the first quarter, the commercial banks had a non-performing loan balance of Rmb549.5 billion – which was actually Rmb10.77 billion lower than at the beginning of the year. Officials will be hoping the trend continues.

Keeping Track: We reported in last week’s issue that state banks ha ve been in lending overdrive. Well, their pace of lending slowed in April, versus the gallop of the first quarter (Rmb4.58 trillion of new loans). Last month they ‘only’lent Rmb591.8 billion ($87 billion). Ho wever, that was still up 27% on what they lent in April 2008.(15 May 2009)

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