The ATM for Chinese banks is sputtering. After coughing up some $100bn in the past five years, including a record $22bn for Industrial and Commercial Bank of China, investors are sated and not a little jaded. Agricultural Bank of China, the last – and grottiest – of the Big Four to list, has been forced to temper its lofty $30bn ambitions by a third. Bank of Communications, part-owned by HSBC, slashed its planned rights issue by a fifth to under $5bn.
About time. Sure, banks are a proxy on economic growth, which China delivers in spades. But they are also engines for that growth, which can backfire. The orgy of lending – $585bn in the first six months of the year, coincidentally identical to the government's fiscal stimulus, on top of $1,400bn last year – will come back to haunt Chinese lenders as surely as it did their Japanese peers before them. Capital adequacy ratios are not Teflon-coated; provisioning at newcomer Akbank is ropy. These are sprawling banks struggling to diversify away from bread-and-butter lending while still being called upon to mop up government bonds, however derisory the yield. Chinese banks boast a cast-iron safety net in the guise of government; but that is no longer a unique attribute.
All of which raises question marks over the banks' generous valuations, of about 1.6-2 times book values based on Hong Kong share prices. US banks are bruised, but is a Chinese lender really worth twice JPMorgan's multiple, for example? For all the hype that accompanied the Chinese banks' privatisations earlier this decade, the trio have produced total returns of 5-15 per cent per annum over the past three years, according to Bloomberg, well below earnings growth. Restraint, such as it is, has come not a moment too soon.