Global Banks Lose Share in China’s $186 Billion Loan Market

Global banks are losing share in the $186 billion lending market for Chinese borrowers offshore, falling behind local rivals boosting their presence just as the nation’s corporate sector recovers from the pandemic.

Their portion of such lending has steadily dropped over the past decade, hitting 37% so far this year to May 17, well below the 11-year average of 51%, according to Bloomberg-compiled data. Last year the share fell to 29%, the lowest since at least 2010. Taking over the slack are local lenders led by Bank of China Ltd., which has made the most offshore loans in the country for at least the last three years.

Global Banks Lose Share in China’s $186 Billion Loan Market

The increased prominence of Chinese banks in the offshore loan market reflects the growth in general of the lenders as the economy expands. Industrial & Commercial Bank of China Ltd. has seen its total assets more than double in the past decade to $5.1 trillion in 2020, making it the world’s largest bank by that measure, and the holdings of its big three state-owned rivals have also ballooned at a similar pace.

For foreign banks, the increased competition from their Chinese rivals could lead to shrinking profit margins on deals, said Gary Ng, economist at Natixis SA in Hong Kong.

Deals in China’s offshore loans, which are non-yuan debt clubbed or syndicated in Asia excluding China for the nation’s borrowers, have grown eightfold to $44.7 billion last year from $5.2 billion in 2010, Bloomberg-compiled data show. Bankers expect mergers and acquisitions to help drive such borrowings this year as the global economy recovers from the pandemic. The rebound in China is also likely to extend into the second quarter, according to Bloomberg economist Chang Shu.

A look at the share of China offshore loans among the top global banks highlights their retreat. Standard Chartered Plc’s portion fell to 5% last year from 9% in 2010 while it’s halved to 3% for HSBC Holdings Plc. Current market leader Bank of China’s share, though, has surged to about 8% from 2% in the period.

Spokespeople at Standard Chartered and HSBC declined to comment. There was no immediate reply from Bank of China to an email seeking comment.

Some international lenders are already reducing staff for the loans or exiting the market completely. Australia’s Westpac Banking Corp. said it aims to close its mainland China and Hong Kong branches next year, subject to local regulatory approval.

“For a lot of international banks, the competitive pressure on margins and terms may not meet their returns hurdle, making it less appealing for them to participate,” according to Augusto King, co-head of Asia debt capital markets - loans and bonds at MUFG Securities Asia.

©2021 Bloomberg L.P.

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