Chinese School - CMB?denies losses from subprime mortgage crisis

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BIZCHINA / Top Biz News

CMB?denies losses from subprime mortgage crisis

(Xinhua)
Updated: 2007-08-15 14:30

China Merchants Bank (CMB), the sixth biggest lender on the Chinese
mainland, reported a 13.4-percent yield by selling its US mortgage-backed
securities, according to Ma Weihua, president of the bank.

Ma rejected the media report that the bank incurred a loss of 103 million
yuan in the US subprime crisis from its investment in mortgage-backed
securities, saying the bank had sold out all the securities in August
last year and has not been exposed to the US subprime lending market
since then.

The Hong Kong-listed bank bought its US mortgage-backed securities in
2004 based on its judgement that the US real estate market may witness
strong growth amid declining interest rates.

The Chinese bank sold all the securities in August 2006 as it sensed the
potential risks in the investment, because the US housing market had
boomed for two straight years then, Ma said.

Besides, he said, "the 13.4 percent rate of returns was good enough for
us."

Ma did not reveal the size of his bank's investment in the US
mortgage-backed securities, but the bank's interim report released last
Friday shows that mortgage accounted for 77.5 percent of its retail loans
at the end of the said period.

The management holds that the bad loan ratio of the bank's mortgage is
quite low, according to Ma.

He also made clear that the bank has no outstanding loans to any
financial institutions that hold the US mortgage-backed securities.

Nevertheless, Ma said, the US subprime crisis had sounded the alarm for
Chinese banks and that CMB would adopt a more prudent policy for its
mortgage business.

The CMB said in the interim report that its net profit surged by 120.38
percent in the six months of the year to read 6.12 billion yuan.

The bank attributed the substantial profit increase to the steady growth
of commercial loans, business expansion, assets structure adjustment,
widening interest rate margin and continuously rapid growth of
non-interest business such as credit card services, according to the
statement.

The CMB was rated the best in the general category for its popular
dual-currency credit card, according to a survey conducted by the Chinese
credit card portal 51credit.com and Shanghai-based poll firm 51poll.com
earlier this year.

Two of the Big Four banks, however, have admitted to having been affected
by the subprime crisis though neither Bank of China nor China
Construction Bank has disclosed the extent of their exposure to the
subprime market, according to media reports.

The current crisis began as subprime mortgage defaults started to spiral
as a result of higher interest rates and the bursting of the US housing
bubble. It has been dragging down the world's major stocks for weeks and
making it difficult for the US and European banks, which bought much of
the repackaged subprime debts, to resell it as its value dropped with
serial defaults and bankruptcies.

But experts hold that the crisis has little impact to the Chinese
mainland because its exposure to the US subprime lending market is
relatively limited.

(For more biz stories, please visit Industry Updates)

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