Friday, December 28, 2007

BROKER CALL Merrill retains cautious view on China banks for next 3-6 months

HONG KONG (XFN-ASIA) - Merrill Lynch (NYSE:MER) (OOTC:MERIZ) reiterated its 'cautious view' on the China banking sector for the next 3-6 months after the country reportedly set loan growth quotas for the big four state-owned banks for 2008.

However, it said it continues to believe in the fundamental story of the sector.Merrill expects Industrial and Commercial Bank of China (OOTC:IDCBF) (ICBC) to outperform in the near term, while reckoning that Bank of China (BOC) has the most re-rating potential over a 12-month period.China's central bank has set a rough ceiling for new yuan loans next year of around 3.6 trln yuan, about the same level as for 2007, mainland media reported earlier.ICBC, China Construction Bank (OOTC:CICHF) (CCB) and Agricultural Bank of China were required to keep net new loans within their 2007 targets at 365 bln, 350 bln and 310 bln yuan, respectively, while quota for BOC was trimmed from 280 bln to 260 bln, reports said.If the figures are accurate, they would translate into loan growth of 11.1 pct, 13.2 pct and 17.3 pct for ICBC, CCB and BOC, respectively, in 2007 and 10.0 pct, 11.7 pct and 13.7 pct in 2008, Merrill said.
The quotas were for yuan loans only. As the sector's foreign currency loans were growing at over 30 pct in 2007, the banks' reported aggregate loan growth should be slightly higher, it noted.
The seemingly lower new loan quota for BOC was mainly due to the bank's accelerated loan growth in 2007 -- nearly 17.3 pct against 11.1 pct in the case of ICBC and 13.2 pct at CCB.Merrill has a target price of 9.45 hkd for CCB's Hong Kong-listed H-shares. It targets 6.10 hkd for BOC's H-shares and 8.00 hkd for ICBC shares.At 2.44 pm, CCB shares were down 0.19 hkd or 2.82 pct at 6.54, while BOC was down 0.06 hkd or 1.56 pct at 3.79 and ICBC was down 0.12 hkd or 1.94 pct at 5.57.
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ICICI Bank is India's second-largest bank with total assets of Rs. 3,446.58 billion (US$ 79 billion) at March 31, 2007 and profit after tax of Rs. 31.10 billion for fiscal 2007. ICICI Bank is the most valuable bank in India in terms of market capitalization and is ranked third amongst all the companies listed on the Indian stock exchanges in terms of free float market capitalisation*. The Bank has a network of about 950 branches and 3,300 ATMs in India and presence in 17 countries. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in Singapore, Bahrain, Hong Kong, Sri Lanka and Dubai International Finance Centre and representative offices in the United States, United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established a branch in Belgium.
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