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Progress is being made by China’s struggling local banks after Beijing recently called for their consolidation to reduce the local-level debts that present a significant source of systemic risk to China’s economy. On July 28, the central Henan province announced its consolidation plans, identifying 25 financial institutions that will be merged into a provincial-level, rural commercial bank, thus marking the first detailed plan to be published since the restructuring was approved in 2022. The plan is intended to “coordinate and clear non-performing assets under small and medium-sized banks, clean up problem shareholders, and replenish capital from multiple sources,” according to the Henan government.
Indeed, six provincial-level, rural commercial banks have been set up in Henan, Liaoning, Shanxi, Sichuan, Guangxi and Hainan since 2023 in response to Beijing’s push for a clean-up of regional banks. “There does not seem to be a plan that fits all. But in general, regions that are more economically developed and experienced in their financial operations appear to be able to find more success in such restructuring, as they have better foundations and capital for their financial institutions, so risks can be better controlled after these mergers,” Zhao Xijun, a professor of finance at the Renmin University of China in Beijing, told the South China Morning Post on July 31. “However, for local governments that are already struggling with their economies, it is hard for them to garner new capital to fund bank operations even after merging…there is even a risk that these small banks with poor finances would drag those better operating ones after such reorganisation. Therefore, the target from these mergers may not necessarily be met.”
At the end of July, Japan’s central bank raised its benchmark interest rate to its highest rate since 2008 of “around 0.25 percent” from its previous range of 0-0.1 percent and also outlined its plan to reduce its bond-buying programme. The Bank of Japan (BOJ) is seeking to normalise its monetary policy after years of pursuing an ultra-accommodative policy that included the world’s last negative interest rate until March. And while only about 30 percent of BOJ watchers expected rates to be hiked on this occasion as their base-case scenario, a Bloomberg survey showed that almost everyone acknowledged the risk of a July move.
The BOJ also confirmed that it would reduce its monthly pace of bond purchases to around ¥3 trillion ($19.9 billion) by the first quarter of 2026. The recent pace of purchases has been roughly double that amount—as of its March release, the central bank noted that its purchases of Japanese government bonds (JGBs) were at around ¥5.7 trillion per month.
However, the BOJ noted that this reduction in JGB purchases will remain flexible, and it will perform a follow-up assessment of the plan at its June 2025 meeting. “The Bank will make nimble responses by, for example, increasing the amount of JGB purchases,” adding that it is “prepared to amend the plan at the MPMs (Monetary Policy Meetings), if deemed necessary”.
The BOJ observed that Japan’s economic activity and prices have been developing “generally in line with the outlook presented” in April and that wage increases have not only been seen in large domestic firms but have also surfaced in smaller firms.
BOJ Governor Kazuo Ueda remarked that any additional hikes this year would be data-dependent and would be approved after accounting for the impacts of today’s move and the March rate hike. But with historical volatility taking hold of Japanese financial markets in early August, the BOJ has strongly signalled a low likelihood of rates being increased further this year.
“I believe that the bank needs to maintain monetary easing with the current policy interest rate for the time being, with developments in financial and capital markets at home and abroad being extremely volatile,” Shinichi Uchida, the BOJ’s deputy governor, confirmed. “Japan’s economy is not in a situation where the bank may fall behind the curve if it does not raise the policy interest rate at a certain pace.”
Foreign banks have already purchased a record-high amount of Indian bonds this year. Despite the end of the year still nowhere near close, overseas lenders have bought 1.37 trillion rupees (more than $16 billion) worth of Indian bonds, which is already higher than the previous record for a whole year of purchases in 2023 of 1.22 trillion rupees, official data showed. The surge in bond-buying by global banks comes as India’s debt was included in JPMorgan’s emerging markets debt index in June.
And with interest rates set to decline, hopes are growing for higher returns from Indian bonds in the coming months. Indeed, the 10-year bond yield fell nine basis points in July, while the 5-year yield slipped by 16 basis points. According to Barclays’ head of markets, Siddharth Bachhawat, moreover, there is scope for yields to fall further. “We retain our long-duration view…. A strong macro backdrop, favourable demand-supply dynamics, growing foreign interest as well as discretionary interest—all augur well.”
According to some analyses, the persistent purchases by foreign participants will reduce the pressure on local banks to absorb supply, while foreign banks are much likelier to buy short-term bonds, driving yields lower and steepening the yield curve. Indeed, Akshay Kumar, BNP Paribas’ head of global markets, India, also noted that foreign-bank buying “has been more concentrated in the shorter end of the curve, which is why that segment has rallied more”.
The latest Banking Survey conducted by Bank Indonesia for the second quarter of 2024 found that new loan disbursements in Southeast Asia’s biggest economy have increased considerably, as reflected by an uptick in the Weighted Net Balance (WNB) (which is calculated by multiplying the respondents’ answers for each loan segment and then calculating the difference between the percentage of respondents answering “increase” and “decrease”) to 89.1 percent, from 60.8 percent in the previous quarter. According to Bank Indonesia, faster growth of new loan disbursements was recorded across all loan types in the reporting period, especially working capital credit (WNB 87.6 percent) and investment credit (WNB 88.5 percent), although consumer credit (WNB 60.8 percent) was indicated to be lower than the previous quarter.
What’s more, survey respondents predicted that new loan disbursements will accelerate further in the third quarter (Q3) of 2024, with the WNB increasing to 93.6 percent. That said, respondents expected slightly tighter lending standards in Q3 compared with Q2, as indicated by a positive Lending Standards Index (LSI) of 2.6 percent, primarily in terms of administration fees. In contrast, interest rates will remain looser.
“The latest Survey also reveals how respondents remain optimistic on credit growth moving forward until the end of the year, with outstanding loans projected to maintain growth momentum,” Bank Indonesia also noted. “Respondents are upbeat, among others, due to the monetary and economic outlook as well as relatively mitigated credit risk when disbursing loans.”
Four of the Philippines’ banks—BDO Unibank (Banco de Oro, or BDO), Bank of the Philippine Islands (BPI), Philippine National Bank (PNB) and Union Bank of the Philippines (UnionBank)—have all reported strong earnings for the first half of the year. The country’s biggest lender, BDO, led the pack with a 12-percent annual increase in net income to reach P39.4 billion ($675 million) for the first six months of 2024. The bank credits this growth to “stronger momentum from its core intermediation and fee-based services”, while non-interest income also grew by 13 percent due to a strong recovery in life-insurance premiums. Gross customer loans, meanwhile, grew by 13 percent, while total assets hit P4.7 trillion as of June 30, 2024. Total deposits also grew by 13 percent to P3.7 trillion.
BPI recorded a whopping 21.5-percent increase in net income to hit P30.6 billion. Total revenues also surged by 23.8 percent to reach P81.2 billion, with the bank attributing the growth largely to a 22.2-percent jump in net interest income (P61.3 billion), a 28.8-percent increase in fee income (P17.0 billion) and foreign-exchange gains of P2.2 billion. PNB achieved a net income of P10.3 billion, thanks to a hefty 17-percent increase in interest income from its loan portfolio and treasury assets, while UnionBank reported a net income of P5.1 billion for the first half of 2024, with its Q2 net income a whopping 50 percent more than Q1 due to reduced expenses following the finalised integration of its acquired Citi consumer business.
On July 29, Australia’s banking regulator confirmed it would retain its stringent home-loan lending rules. “Given the uncertain economic and interest rate outlook, including the possibility of higher cost-of-living pressures, it is important that prudent buffers are incorporated in serviceability assessments,” the chair of the Australian Prudential Regulation Authority (APRA), John Lonsdale, explained in a statement. As such, the APRA will retain its guideline requiring key lenders to assess new borrowers’ capacity to meet loan repayments using a benchmark rate of at least three percentage points above the prevailing home-loan rate. The confirmation comes amid growing concerns that risks to the financial system remain elevated, especially given that the interest rate and economic outlooks for Australia continue to be uncertain.
Australia’s federal government is also promising to change the law to force banks to compensate Australian customers whom scammers have deceived into transferring money to them. According to the assistant treasurer and minister for financial services, Stephen Jones, a government crackdown on scammers is having some success, but the banks that operate the platforms upon which scammers contact their victims and enable their financial transactions should be doing more to stop the scams. “A fundamental characteristic of scams is that they are transactions that are authorised—through deception—by the victim, so the law is not fit-for-purpose,” Jones will say, according to an advance copy of the speech seen by Guardian Australia. “We will address this to ensure victims can receive compensation in the right circumstances. Compensation for inaction, for negligence, for failing to meet an obligation is a critical part of our framework.”
In late May, Payments NZ, which supervises the country’s payment system, confirmed that the four main banks in the country—ANZ Bank (Australia and New Zealand Banking Group Limited), Bank of New Zealand (BNZ), ASB Bank and Westpac—will be ready by May 2025 to begin implementing open banking, with Kiwibank slated to join in 2026. Payments NZ’s chief executive, Steve Wiggins, stated that while limited open banking was already available, bringing the four main banks on board would be significant for consumer benefits. “It enables consumers to have more choice in who they want to share their financial data with and how they want to make payments,” Wiggins confirmed. “It encourages greater competition and customer innovation by allowing consumers to access a wider range of products and services from different providers. Over time, more new players will join the ecosystem, and I look forward to seeing innovation thrive as a result.”
The news follows the publication in March of New Zealand’s first competition study into personal banking services, which revealed “a two-tier sector with limited competition and no disruptive forces to drive change and deliver consumer benefits”. As such, the study recommended a slew of measures to help new and existing providers enter and expand in the market. One of the measures is to accelerate progress on open banking. “Open banking has the potential to revolutionise banking over the medium to long term. However, fintechs are facing severe barriers and are unable to provide disruptive innovation,” the study noted. “The Report recommends setting a clear deadline to have open banking fully operational by mid-2026 and having regulatory backstops available so that the minimum requirements are delivered to support the acceleration of open banking.”
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