Today's news that Singapore is liquidating $2.5 billion in
Chinese bank stock should not alarm traders wary of the sector's
health. If anything, by global standards, these banks are among the
most solid in the world -- if, of course, you believe the official
numbers.
Temasek waited until Bank of China (
BACHY
,
quote
) and China Construction Bank (
CICHY
,
quote
) announced good but not great earnings to unload the shares.
This looks more like a move to take profits than dump failures.
Both stocks are up 10% year to date, narrowly ahead of broad but
bank-heavy
funds like
FXI
(
quote
).
And while neither bank has delivered much in the way of upside
surprise in its recent operating results, neither is exactly
drowning in toxic loans.
BACHY's non-performing loans dipped to just 1% of its portfolio
in the recent quarter, while credit quality at CICHY looks only
minimally less robust.
Granted, in the world of Chinese banking, any bad loan ratio
above 0.90% looks bad on a relative basis, and
China bears
will always be quick to point out that these institutions may be
hiding their failures under the guidance of Beijing.
But if these massive institutions are lying to that extent about
their assets, then we all have bigger things to worry about than
whether Singapore has suddenly discovered trouble in its
portfolio.
And how good do these numbers have to be to keep the China bears
happy? Brazilian banks are considered world-class as long as they
keep their
non-performing loan numbers below 5%
-- five times as bad as what BACHY and CICHY deliver.
Russia's Sberbank (
SBRCY
,
quote
) has
won its share of fans
despite a default rate well above 6%. Even if you figure that an
institution backed by Beijing is just as "too big to fail" as one
backed by the Kremlin, the Chinese bank still looks a lot more
solid.
There is also a double standard at work here that punishes Asian
lenders for anything less than perfection, while rewarding Western
institutions that take on huge amounts of risk to beef up their
margins. How else do you explain the fact that in South Korea, a
default rate of 2% is
seen as horrific
, while the Brazilian government itself is urging its lenders to
take bigger risks?
It would also be a very strange thing for Temasek to panic and
dump its Chinese banks barely two weeks after
increasing its stake
in Industrial and Commercial Bank of China (
IDCBY
,
quote
) by roughly $2.3 billion.
Both BACHY and CICHY are
still on top
of Temasek's holdings in the financial services sector. And
Singapore has made it extremely clear that it
plans on expanding
its Chinese banking exposure when the right opportunity comes
along.
In the past, Temasek has even reversed itself, selling China
banks to lock in profits and then
buying back in
a few weeks or months later.
This is not a sell signal on China or its banks. It's business
as usual among the big players.
