Bank Valuations
Investors are cutting their estimates for the value of Chinese bank assets. The MSCI China Financials Index's price-to- book ratio, a measure of share prices relative to net assets, tumbled to 1.8 on July 29, the lowest level since February 2009, from 2.8 two years ago, according to monthly data compiled by Bloomberg. The ratio for Chinese lenders slipped below that of the MSCI Emerging Markets Index on June 21 for the first time since January 2006, data compiled by Bloomberg show.
Industrial & Commercial Bank of China Ltd., the world's largest lender by market value, slumped 8.2 percent from the end of March through July 29 even after saying bad loans dropped almost 4 percent in the first quarter. The stock gained 1 percent today.
Credit-default swaps on Bank of China Ltd., the nation's third-largest lender by assets, jumped to 153 basis points from 106 on March 31, according to data compiled by Bloomberg and CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets.
'Increasingly Tangible'
"We expect Chinese banks' nonperforming loans to rise noticeably over the next few years," Liao Qiang, a director at Standard & Poor's in Beijing, said in an e-mailed response to questions on July 21. "This could be increasingly tangible as policy tightening continues."
Brazil's biggest lender, Itau Unibanco Holding SA, raised its default-rate forecast for 2011 to between 4.5 percent and 4.6 percent on July 11. The Sao Paulo-based bank had forecast a rate of 4.2 percent to 4.5 percent. Itau's shares have tumbled 21 percent this year, helping to drag down the MSCI Brazil Financials Index by 19 percent in local currency terms. That compares with a 12 percent retreat in Europe's Stoxx 600 Banks Index and a 7.3 percent drop in the S&P 500 Financials Index.
Credit Suisse Group AG lowered its rating of Itau on July 26 to "neutral" from "outperform" and cut its earnings forecasts for Brazilian banks by an average of 4 percent this year on concern that higher provisioning costs will crimp industry profits.
Retrenchment
Brazilians' debt burdens are rising after the central bank lifted its benchmark interest rate five times this year to the highest level since March 2009. The average interest rate on consumer loans was 46.1 percent in June, up from 40.6 percent in December, according to the central bank. The average rate on company loans increased to 30.8 percent from 27.9 percent.
Loan payments by Brazilian consumers climbed to 26 percent of disposable income in March, up from 24 percent a year earlier. The rising costs of debt signals Brazil's consumers are "overstretched," Neil Shearing, a senior emerging-markets economist at Capital Economics in London, wrote in a July 12 report.