Chart of the Day: Here's proof that rocketing loans to China isn't so bad after all

Everyone should calm down.

According to Maybank Kim Eng, investor concerns over the risks posed by Singapore banks’ robust loan growth in China are overdone.

Unlike domestic banks, Singapore banks have been very selective in their lending in China. 

Here's more from Maybank Kim Eng:

This is not surprising as they have relatively smaller balance sheets and their lending and deposit franchises are not as well recognised as their local counterparts’.

Moreover, Chinese corporates do not usually deal with small foreign players like Singapore banks for their longer-term funding requirements due to the latter’s inability to price their products as competitively as the large Chinese banks.

Recent loan growth driven by short-term and safer trade loans. Trade loans are inherently safer as they are short term in nature with an average duration of six months.

We understand that 70% of DBS’s trade loans to China are of six-month duration. A short duration means banks are able to reduce their exposure to trade loans quickly, if required. We also note that the majority of such loans are backed by bank guarantees.

Based on our channel checks, 50% of DBS’s total trade loans of SGD50b (+28% YoY) at end-2013 were backed by bank guarantees.

We also take comfort in the fact that DBS has maintained stringent lending standards in China by focusing on the right market segment culled from a list of internally-generated prospective clients of 1,000 Chinese companies which are considered as long-term winners in China.