Chinese Banks Continue To Lend Heavily. Is This Good or Bad?

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China’s economy experienced tremendous growth in the past few decades primarily due to government spending and not due to private consumption. Much of the state spending was directed towards infrastructure such as roads, railroads, dams, electricity grids, etc. and other large scale projects. An example of such project is the world’s longest sea bridge opened this week.

The 36.48-km eight-lane Qingdao Jiaozhou Bay Bridge connects China’s eastern port city of Qingdao to the island of Huangdao. It cost 14.8 billion yuan or $ 2.3 billion. This bridge beat the previous record holder for a bridge over water, the Lake Pontchartrain Causeway in Louisiana, according to Guinness World Records.

Chinese banks are the major lenders for local governments who are able to build major world-class projects. State-controlled banks lend liberally to the real estate sector as well which has lead to overheating of the housing market in most cities. In some cities local governments and party officials channel loans from banks into real estate development firms controlled by them. While high investment in infrastrcture projects should be expected in dveeloping countries it remains to be seen if they would payoff in the long run.

The chart below shows the Top 25 Banks by Asset Growth

Click to enlarge


 

Source: The Banker

Except eight banks, Chinese banks fill the above list. The assets of Kunlun Bank of China grew by an astonishing 294% in 2010 over the previous year. Just one US bank is on this list confirming the cautious stance American banks are taking in lending since the credit crisis. As to the question of wisdom of Chinese banks’ lending spree, only time will tell if their profligate lending is a boon for economic growth or will lead to bust.

The World’s Top 25 Banks by Profits

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The Banker magazine has published the list of the Top 1000 World Banks based on 2010 data.

The graphic below lists The Top 25 Banks by Profits:


Source: The Banker

Some observations:

1. Among the British banks only Barclays(BCS) and HSBC (HBC) are in this list with HSBC ranked at number five. British banks such as Llyods Banking Group(LYG) have lost their dominance in the past few years due to heavy losses and bailouts by the state. According to a Journal report some are also pulling back on their overseas operations to focus more on core businesses.

2. China is represented by four banks among top 25 including the top two rankings.

3. Among the BRIC countries, none of the banks from India made it to the list.

4. JPMorgan Chase (JPM) remains the most profitable large cap banks in the U.S.

Disclosure: Long LYG

Canadian Dividend Growth Stars

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The Globe and Mail recently published an interesting article on Canadian dividend growth stocks. With research help from Morningstar CPMS, the article revealed three lists with different views on dividend growth.

From the article:

One includes the Canadian stocks that have increased dividends in each of the past 10 years, and another covers 15 stocks that have increased their dividends the most on an average annual basis over the past 10 years.

The third list comes out of an exercise conducted by CPMS to test the idea that focusing on dividend growth stocks is a smart approach for investors. Using data going back to 1992, CPMS created annual portfolios of all TSX-listed stocks that increased their dividend over the previous year. The annualized return through 2010 was 13.9 per cent, compared to 9.7 per cent for the S&P/TSX composite total return index. Both figures include dividends as well as share price gains.

The stocks listed below are from the third list noted above.

Dividend Growth Stars of Today, Part Three

Company Ticker (TSX) Purchased Purchase Price ($) Current Yield (%) Yield on Cost (as of Dec. 31) (%)
Fortis FTS 12/31/1991 5.97 3.6 19.4
Canadian Utilities CU 12/31/1992 10.25 2.9 14.7
SNC-Lavalin Group Inc. SNC 12/31/1993 2.08 1.5 32.7
Atco Ltd. ACO.X 12/30/1994 7.50 1.9 14.1
Imperial Oil IMO 12/30/1994 5.14 1.0 8.6
Emera Inc. EMA 12/29/1995 12.38 4.1 10.5
Empire Company Ltd. EMP.A 12/29/1995 6.50 1.5 12.3
Metro Inc. MRU.A 12/29/1995 4.66 1.6 14.6
Toromont Industries TIH 12/29/1995 3.69 3.4 17.3
Canadian National Railway CNR 12/31/1996 8.68 1.7 12.4
Enbridge Inc. ENB 12/31/1996 9.99 3.2 19.6
AGF Management Ltd. AGF.B 12/31/1997 9.16 5.6 11.4
Saputo Inc. SAP 12/31/1998 10.80 1.4 5.9
Ensign Energy Services ESI 12/29/2000 9.25 2.1 4.1
Canadian Natural Res. CNQ 12/31/2001 4.79 0.9 6.3
CCL Industries CCL.B 12/31/2002 19.46 2.2 3.6
Finning International FTT 12/31/2002 12.77 1.8 3.8
Suncor Energy SU 12/31/2002 12.35 1.2 3.2
Transcontinental Inc. TCL.A 12/31/2002 18.50 3.7 2.4
TransCanada Corp. TRP 12/31/2002 12.92 4.0 7.0

Note: Purchase price may be adjusted for stock splits; yield on cost is the dividend yield resulting from the 2010 level of dividends and the original purchase price.

Source: Morningstar Canada

Note: Please note prices mentioned are in Canadian dollars and tickers are for the TSX exchange in Toronto.

Canadian National Railway (CNI) reached a yearly high of $81.26 on the NYSE today. TransCanada Corp (TRP) and Enbridge Inc (ENB) have a dividend yield of over 3%.

Disclosure: Long CNI