Banks China Lucy Feng 2011

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14 January 2011Nomura

N O M U R A I N T E R N A T I O N A L ( H K ) L I M I T E D

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Nomura Anchor Reports examine the key themes and value drivers that underpin oursector views and stock recommendations for the next 6 to 12 months.

Any authors named on this report are research analysts unless otherwise indicated.See the important disclosures and analyst certifications on pages 153 to 156.

Banks | C H I N A 2011 Outlook

Lucy Feng +852 2252 2165 [email protected]

Donger Wang +852 2252 1590 [email protected]

A leap of faith

We think the Year of the Rabbit will be favourable for early believers in China banks.We believe the market is undervaluing the near-term operational outlook, overplaying

regulatory risks and ignoring emerging growth. We look for NIMs to expand in the near

to medium term, and see the pace accelerating in 1Q11F and 2Q11F on the back of

the two rate hikes in late 2010. The fear factor has changed from LGFV exposure to

rate liberalisation, particularly deposit liberalisation, but this is likely to take a long time

in our view, and we do not expect significant margin erosion (50bps decline implied by

market valuations) in the next three years as Chinas inflation and benchmark rates are

on the rise while the PBoC addresses the issues of negative deposit rates and zero

real lending rates. We do acknowledge that the introduction of different RRRs changes

the playing field and this is an overhang on the stocks, but we believe we are the first

on the Street to analyse this in detail and conclude that what it really means is that thePBoC wants to align economic growth more closely with resource allocation. Therefore,

we believe banks with a rural focus such as ABC or an SME/retail focus such as CMB

are likely to benefit, and these are our top BUYs along with BOC (beneficiary of RMB

deregulation). That said, we believe BOCOMs growth profile will be compromised a

little by differential RRR and we downgrade to NEUTRAL.

Even more controlled lending to curb inflationary pressures

Implied sustainable ROEs already reflect bear case scenario

Stock picks: rural players immune to tighter new policies

BULLISH

Stocks for action

We remain positive on the sector, withCMB (SME focus), BOC (RMB

deregulation), ABC (rural financing) and

ICBC (defensive play) our top H-share

picks. Industrial Bank (mortgage

portfolio) is our A-share pick.

Stock RatingLocalprice

Pricetarget

ABC-H (1288 HK) BUY 3.99 4.80

ICBC-H (1398 HK) BUY 5.87 7.60

CCB-H (939 HK) BUY 7.06 8.60

BOC-H (3988 HK) BUY 4.14 5.20

BOCOM-H (3328 HK) NEUTRAL 8.03 9.00CMB-H (3968 HK) BUY 20.20 26.86

CITIC Bank-H (998 HK) BUY 5.22 6.30

Minsheng Bank-H (1988 HK) NEUTRAL 6.59 7.40

Downgrading from Buy; Raising PT; Cutting PTClosing prices as of 7 January 2011

Analysts

Lucy Feng

+852 2252 2165

[email protected]

Donger Wang

+852 2252 1590

[email protected]


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14 January 2011Nomura 1

Banks | C H I N A 2011 Outlook

Lucy Feng +852 2252 2165 [email protected]

Donger Wang +852 2252 1590 [email protected]

Action

While we reiterate our fundamentally Bullish stance, we think 1Q11F monthly loan

figures will be subject to close scrutiny by the market as a barometer of things tocome under the new environment in 2011. We expect a more moderate pace of

rate hikes especially in 1H11F to cushion the impact of loan demand. Our top picks:

CMB, BOC, ABC and ICBC.

Catalysts

Strong 4Q10F and 1Q11F results may improve investment sentiment and provide

better earnings visibility for 2011.

Anchor themes

Margin expansion and front-loading new loans are the key themes investors will

look for in 1H11F, but negative sentiment from ongoing policy overhang still weighs

on valuation. We think that, with rate liberalization a medium-term theme, share

prices reflect a worst-case scenario on asset quality and margin deterioration.

A leap of faith

Even more controlled lending to curb inflationary pressures

In our view, the monthly monitoring of banks lending and different required reserve

rates (RRR) for different banks lets the Peoples Bank of China (PBoC) control

bank lending more closely using subjective measures. We believe the different

RRRs, if implemented strictly, are likely to affect the lending appetite of banks,

causing them to be more cautious with regard to the pace of lending as well as the

areas they lend to. The use of the anti-cyclical capital buffer is useful to absorb theimpact from excessive lending in the system. On the other hand, it is increasingly

apparent that liquidity is becoming tighter and it will be interesting to see whether

the continued pressure for funding will cause the erratic yield spikes at the end of

the month to persist. We understand that local bank branches have continued to be

active in selling short-term savings products to attract liquidity. We believe that

large-cap banks will dominate 2011 loan growth, given their lower LDR and larger

deposit base.

Implied sustainable ROEs already reflect bear case scenario

We estimate that under current valuations, Chinese banks have implied

sustainable ROEs of 13-14%. In our view, interest-rate deregulation remains a

medium-term target for the PBoC and it is likely to be a gradual process. The

China Banking Regulatory Commission (CBRC) is progressively helping Chinese

banks to be ready for Basel III through using related concepts as part of new

regulatory tools. We see no imminent credit risks or earnings downside, and

reiterate that the early believers will be rewarded.

Stock picks: rural players immune to tighter new policies

We maintain that the objective of the PBoC under the new different RRR system is

to align economic growth more closely with resource allocation. Therefore, we

believe banks with a rural focus such as ABC or an SME/retail focus such as CMB

are likely to benefit. Our sector top picks: CMB (SME focus), BOC (RMB

deregulation), ABC (rural financing is subject to more relaxed monetary policy) andICBC (defensive play).

BULLISH

N O M U R A I N T E R N A T I O N A L ( H K ) L I M I T E D

Stocks for action

We remain positive on the sector, with

CMB (SME focus), BOC (RMBderegulation), ABC (rural financing) and

ICBC (defensive play) our top H-share

picks. Industrial Bank (mortgage

portfolio) is our A-share pick.

Stock RatingLocalprice

Pricetarget

ABC-H (1288 HK) BUY 3.99 4.80

ICBC-H (1398 HK) BUY 5.87 7.60

CCB-H (939 HK) BUY 7.06 8.60

BOC-H (3988 HK) BUY 4.14 5.20

BOCOM-H (3328 HK) NEUTRAL 8.03 9.00

CMB-H (3968 HK) BUY 20.20 26.86

CITIC Bank-H (998 HK) BUY 5.22 6.30

Minsheng Bank-H (1988 HK) NEUTRAL 6.59 7.40

Downgrading from Buy; Raising PT; Cutting PTClosing prices as of 7 January 2011

Analysts

Lucy Feng

+852 2252 2165

[email protected]

Donger Wang

+852 2252 1590

[email protected]


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Banks | China Lucy Feng


Contents

Executive summary 4

Five themes in 2011 6(1) Different RRR for different banks is a more micro approach and changes the

playing field 6(2) New rules help banks getting used to Basel III 7(3) The need to find loan supply to meet the demand 7(4) Seeking a solution to end-of-month pressure on yields 9(5) Rate deregulation remains a medium-term target 10Look for banks that have over-reacted on the news 111Q11 to provide a few clues to the riddle 11

Macro and monetary policy 13CPI inflation likely to stay on uptrend throughout 1H11F 13Two rate hikes in 2010, four more in 2011F 14Central Economic Work Conference laid positive foundation for banks in 2011F 15Overall loan and deposit growth trends in November 16

4Q10 preview and 2011 earnings forecasts 25Risks from LGFV loan default should remain remote 28County area banking in China 32

County areas in China 32County area banking in China 38

Rural banking industry analysis and case studies 45County area economy development under Chinas urbanisation 45Key provinces overview 50Jiangsu Zhangjiagang Rural Commercial Bank 55Jiangsu Xizhou Rural Commercial Bank 57Jiangsu Changshu Rural Commercial Bank 59Shanghai Rural Commercial Bank 61Zhuhai Rural Credit Cooperatives 63

Jiangsu Taicang Rural Commercial Bank 65Hefei Science & Technology Rural Commercial Bank 67Foshan Shunde Rural Commercial Bank 69Jilin Jiutai Rural Commercial Bank 71Jiangsu Jiangyin Rural Commercial Bank 72Jiangsu Wujiang Rural Commercial Bank 74Guangdong Rural Credit Union 77

Appendix 78PBoC benchmark rate 79Breakdown data by banks 80


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Regional banks valuation comparison 97Regional banks performance comparisons 99Latest company views

Agricultural Bank of China 101

ICBC 106

China Construction Bank-H 110

Bank of China (H-share) 114

Bank of Communications 118

China Merchants Bank 122

China CITIC Bank 127

China Minsheng Bank - H 131

Shanghai Pudong Development Bank 135

Shenzhen Development Bank 139

Industrial Bank 143

Huaxia Bank 147

Also see our Anchor Report: Asia PacificStrategy Deflation, inflation and the returnof the productive economy(6 December, 2010)

Also see our Anchor Report: China Strategy Higher ground(7 December, 2010)
http://www.nomura.com/research/GetPub.aspx?spid=7226http://www.nomura.com/research/GetPub.aspx?spid=7226http://www.nomura.com/research/GetPub.aspx?spid=7226http://www.nomura.com/research/GetPub.aspx?spid=7226http://www.nomura.com/research/GetPub.aspx?spid=7226http://www.nomura.com/research/GetPub.aspx?spid=7235http://www.nomura.com/research/GetPub.aspx?spid=7235http://www.nomura.com/research/GetPub.aspx?spid=7235http://www.nomura.com/research/GetPub.aspx?spid=7235http://www.nomura.com/research/GetPub.aspx?spid=7226http://www.nomura.com/research/GetPub.aspx?spid=7235


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Drilling down

Executive summaryThe best thing about the future is that it comes one day at a time Abraham

Lincoln

The year 2010 marks one of the worst years of performance for China banks on both

relative terms (they underperformed 10% versus the HSI and 4% versus the HSCEI)and absolute terms (-4% versus +15% on average in 2005-10). As the sector appears

inexpensive and stayed so in the past 12 months (7x to 8x P/E 2011F), we think

investors have come to the conclusions that (1) the sector is a valuation trap as the

trade was dominated by policies rather than fundamentals, and (2) the sector is cheap

for deep-rooted reasons/problems, which may cause a medium to long term de-rating.

While investors concern on the policy overhangs prevail, worry shifted from local

government funding vehicles (LGFV) to interest-rate liberalization, particularly the

pace and space, timetable, as well as the fundamental implications, for the sector.

Exhibit 1. Sector performance comparison

(50) 0 50 100 150

Technology

Power and Utilities

Property

Basic Materials

Financials

Conglomerates

Solar

China - Total

Telecoms

Consumer Related

Oil & Gas/Chemicals

Industrials

Transport/Logistics

Media & Internet

Health care & Pharm

Gaming, Hotels and Leisure

(%)

Source: Bloomberg, Nomura research

Exhibit 2. Historical share price performance

(%)2011

(YTD) 1H10 2H102010

(full year)

ICBC 1 (10) 1 (9)

CCB 1 (4) 10 6

BOC 1 (6) 3 (3)

BCOM 3 (3) (6) (9)

CMB 3 0 4 4

Citic 4 (23) 1 (22)

Minsheng (1) (8) (3) (10)

Sector 2 (7) 4 (4)

Hang Seng Index 3 (8) 14 6

HSCEI 2 (10) 11 0

MSCI Financials - World 1 (14) 17 0

MSCI Financials - Europe (1) (26) 15 (15)

MSCI Financials - US 2 (6) 16 10


It is our view that rate liberalization, particularly deposit liberalization, will take longer

than expected to implement. Initially the central bank probably will introduce pilot tests

for a few selected banks for a few selected products (such as large-size, long-maturity

term deposits). Thus, the impact for the sector should be limited and will be closely

monitored by the regulators. Significant margin erosion (50bps decline implied by the

market) is unlikely to happen in the next three years, in our view, as Chinas inflation

and benchmark rates are on the rise while the PBoC addresses the issues of negative

deposit rates and zero real lending rates.

Contrary to conventional wisdom, we believe that China banks NIM will expand in the

near to medium term, and that the pace will accelerate in 1Q11F and 2Q11F, with the

backdrop of two rate hikes in late 2010. Long term, we believe that now would be a

good time for regulators to introduce rate liberalization, as a rising rate environment

helps the banks absorb margin pressure from price competition. Hence, banks can

either re-orientate their lending business towards higher margin SMEs (though better

risk-pricing skills are required) or re-model their business model towards less capital-

consuming fee products. In Asia, the ASEAN banks have posted solid NIMs attributed

to rising interest rates and a profit-driven lending model.

Rate liberalization will take longer

than expected to implement


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Exhibit 3. NIM comparison of banks in regional

countries

0

2

4

6

8

Australia

China

Hong

Kong

India

Indonesia

Malaysia

Singapore

South

Korea

Taiwan

Thailand

(%) 2009 2010F

Source: Company data, Nomura estimates

Exhibit 4. Market implied margin erosion from

potential rate liberalisation

(0.8)

(0.6)

(0.4)

(0.2)

0.0

ABC

ICBC

CCB

BOC

BCOM

CMB

CITIC

Minsheng

(%)

Source: Bloomberg, Nomura estimates

While all trading patterns seem to call for an underweight stance on the sector, weremain positive for the aforementioned reasons. China banks have underperformed for

the past 15 months for the same reason policies and policy tightening. And

emotional markets tend to decline (or rally) much longer than is perceived possible.

Judging from the feedback of our past five weeks marketing, we conclude that most

investors do not expect further policy announcements to be worse than what they

already know. Even the bears do not expect rate liberalization to occur overnight and

cut sector NIMs by a quarter the level perceived by the market (13bps to 60bps

deterioration).

The fear or hope for a further correction is especially prevalent amongst investors

with a technical bent. This divergence between short-term and medium-term

perspectives reflects a difficult dilemma for investors, most of whom are equal to

underweight China banks, in our view.

Many expect a perfect storm in 1Q under an inflationary shock event, for bottom

fishing. Timing, as they say, is everything. We think that the much-speculated-about

pullback will not occur in 1Q, as we do not expect any inflationary shock in the next

few weeks. In the next section we summarize five themes we will look into in 2011and

we point out that most of the positive catalysts, which should drive a re-rating of the

sector, will occur in 1Q11F, in our view.


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2011 outlook

Five themes in 2011

(1) Different RRR for different banks is a more micro approachand changes the playing field

We think that from the beginning of 2011, the PBoC will start monitoring individual

banks on a monthly basis and issue different RRRs accordingly. Different RRRs are

likely to be applied to national financial institutions initially. We think that the PBoC will

allow a grace period of three quarters. We believe that the PBoC is considering

lowering the interest rate for required reserves to lower the banks own costs. We

believe that this system allows the PBoC to control bank lending more closely, in

addition to the loan quota, which at times to us appears inadequate in controlling

seasonal fluctuations and excessive lending by certain banks. Interestingly, this

appears to be moving in the opposite direction to the further deregulation of the

Chinese banking system.

We believe that the different RRRs, if implemented strictly, would be likely to affect the

lending appetite of banks, and that this could have implications for loan growth. The

market has been speculating that this could lead to more lending in early 2011, due to

the grace period in the first three quarters, which would effectively allow for a lower

level of different RRRs.

Exhibit 5. RRR versus banking sector PB

6

8

10

12

14

16

18

20

Jun-05

Oct-05

Mar-06

Jul-06

Nov-06

Apr-07

Aug-07

Jan-08

May-08

Oct-08

Feb-09

Jun-09

Nov-09

Mar-10

Jul-10

Dec-10

(%)

0.00.51.01.52.0

2.53.03.54.0

(x)

RRR - Large Depository Institution (LHS)

RRR - Small and Medium Depository Institution (LHS)

sector PB (RHS)


Exhibit 6. RRR versus banking sector PB (large cap

banks and small & medium banks)

6

8

10

12

14

16

18

20

Nov-05

Apr-06

Aug-06

Dec-06

May-07

Sep-07

Jan-08

Jun-08

Oct-08

Mar-09

Jul-09

Nov-09

Apr-10

Aug-10

Dec-10

(%)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

(x)RRR - Large Depository Institution (LHS)RRR - Small and Medium Depository Institution (LHS)

Large cap banks PB (RHS)

Small & Medium banks PB (RHS)


Regulators becoming stricter to control lending

In setting its lending strategy, a bank must consider its deposit growth/LDR,

provisioning and capital. It appears to us that both the PBoC and CBRC now have a

tighter grip on each of these factors. We believe that through these measures the

regulatory authorities hope to make banks more cautious in their lending.

Interest rate paid for the different RRRs is not certain

The different RRRs will usually earn an interest rate on the reserve, which is now

1.62%. However, if a bank has been lending excessively or has been asked to have a

different RRR a number of times then the excess RRR interest rate (0.72%) might

apply or the PBoC might pay no interest.

Linking RRR with CAR

We understand that the PBoC is contemplating setting the different RRRs by applying

a factor of stability-adjustment specifics for the bank and multiplying this by the

difference between the required CAR and the actual CAR. We think the factor of

We think PBoC will start

monitoring banks through

issuance of different RRR


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stability adjustment will be set subjectively by the PBoC and is likely to be driven

mainly by 1) liquidity, leverage, provisioning levels, credit rating, and internal controls

of a bank; and 2) the actual lending by the bank including the sectors.

In our view, the goal of the PBoC under the new different RRR system is to align

economic growth more closely with loan allocation. Therefore, we believe that banks

with a rural focus, such as ABC, or an SME/retail focus, such as CMB, are likely to

benefit.

Exhibit 7. RRR versus loan and deposit growth

0

5

10

15

20

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

(%)

0

10

20

30

40

(%)



y-y loan growth (RHS)

y-y deposit growth (RHS)

Source: CEIC, Nomura research

Exhibit 8. RRR versus LDR

0

5

10

15

20

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

(%)

60

65

70

75

80

(%)



LDR (RHS)


(2) New rules help banks getting used to Basel III

The linking of the RRR to the capital-adequacy ratio (CAR) is a new concept. At the

moment the required CAR is the mean of the minimum CAR (8%), system important

excess capital, and anti-cyclical capital buffer. Both the system important excess

capital and anti-cyclical capital buffer are also new concepts introduced under Basel III,which, in our view, the CBRC is considering to use as a new regulatory tool. Therefore,

the implementation of a different RRR is also likely to help Chinese banks to be ready

for Basel III over time. For the system important excess capital, the PBoC would

consider a banks asset size, mix of counterparties and volume, market share and

client impact.

The PBoC stated that ABC, ICBC, CCB, BOC, and BCOM are systemically important

banks. For other smaller banks, BCOMs asset size relative to that bank could be used

as a factor to determine the system important excess capital.

For the anti-cyclical capital buffer, the PBoC calculates this as a banks contribution to

pro-cyclical lending multiplied by [bank lending growth minus (GDP target growth plusCPI target growth)]. For a banks contribution to pro-cyclical lending, there are two

references:

Total lending divided by GDP and its spread from the long-term mean;

A banks lending relative to the total. The PBoC stated that the anti-cyclical capital

buffer is useful to absorb the impact from excessive lending in the system.

(3) The need to find loan supply to meet the demand

2011 is the first year of the new 12th Five-year Plan, in which there is likely to be new

projects and strong loan demand. It will be intriguing to see how this will be affected by

what seems to be tightening liquidity and shrinking loan supply. We understand that

Chinese banks still have on hand a good amount of projects that require loans, so the

issue is whether banks have the capacity and willingness to lend.

Different RRRs are likely to help

Chinese banks ready themselves

for Basel III

The issue is whether banks have

the capacity and willingness to

lend


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For Chinese banks, we estimate that around RMB21.6-21.8tn of loans will mature

during 2011. Assuming 2011 sector new loans hit Rmb7-8tn, effectively a net number,

this means gross new loans are circa RMB28.6-29.8tn in our view.

Exhibit 9. Percentage of loans with maturity


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Exhibit 13. Net new loans/deposits breakdown in for Jan/Feb/Mar for past few years

2005 2006 2007 2008 2009

Jan Feb Mar Jan Feb Mar Jan Feb Mar Jan Feb Mar Jan Feb Mar

Loans

Monthly net new loans 288.5 95.9 341.9 483.9 149.0 537.4 568.4 413.8 441.7 800.5 247.0 283.4 1,652.7 1,071.6 1,891.7

As % of total new loans in the year 17.5 5.8 20.7 15.8 4.9 17.5 15.6 11.4 12.2 19.2 5.9 6.8 17.2 11.1 19.6

Deposits

Monthly net new deposits 394.4 338.3 682.1 427.4 623.5 786.1 467.8 530.7 880.4 218.0 1,337.6 1,076.6 1,538.9 1,650.8 2,451.8

As % of total new deposits in the year 8.6 7.4 14.9 8.8 12.9 16.3 8.7 9.8 16.3 2.8 17.4 14.0 11.7 12.6 18.6

Source: CEIC, Nomura Research

Given larger banks generally have a relatively lower LDR and also potentially higher

deposit growth, they are the ones with the capacity to lend in our view. At the same

time, the larger banks tend to be more cautious and strategic in their lending approach.

Finally, we think bills remain the key source of short-term funding for corporates. Under

a tighter liquidity environment, their flexibility could be used as a tool for banks to

manage liquidity.

Exhibit 14. Discounted bills as percentage to totalloans

0

2

4

6

8

10

12

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

(%)

3.29% at end-Nov, 2010


Exhibit 15. Yield on discounted bills (with maturity of6 months)

01

2

3

4

5

6

7

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

(%) 4.6% as of 7 Jan, 2010

Source: www.zgpj.net

(4) Seeking a solution to end-of-month pressure on yields

It is increasingly apparent that liquidity is becoming tighter and it will be interesting to

see whether the continued month-end pressure on yields will cause the erratic spikes

during month-end to persist.

We understand post speaking with bank branch management that large-cap bankshave continued to be active in selling short-term (meaning single-digit days) savings

(or what they package as investments) products to attract liquidity (or in fact deposits).

Meanwhile, large-cap banks seem to fund medium to smaller banks through inter-bank

activities which could generate handsome income, given the ongoing spike in short-

term inter-bank rates.


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Exhibit 16. Historical SHIBOR yields

0

2

4

6

8

10

12

Oct-06

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Apr-10

Oct-10

(%) Overnight

1 week

1 month

3 month

6 month1 year


Exhibit 17. SHIBOR yield curve

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Overnight 1 week 1 month 3 month

(%)Today 3 months ago 1 year ago


Exhibit 18. RRR versus SHIBOR

0

5

10

15

20

Oct-06

Feb-07

Jun-07

Nov-07

Mar-08

Jul-08

Dec-08

Apr-09

Aug-09

Dec-09

May-10

Sep-10

(%)

0.0

1.0

2.0

3.0

4.0

5.0

(%)

RRR - Large (LHS)

RRR - Small and Medium (LHS)

SHIBOR- 1 month (RHS)

SHIBOR- 3 month (RHS)SHIBOR - 1 year (RHS)

Note: Large=Large Depository Institution; Small and medium= Small and mediumDepository Institution


Exhibit 19. RRR versus 7-day repo rate

0

5

10

15

20

Mar-06

Jul-06

Nov-06

Apr-07

Aug-07

Dec-07

May-08

Sep-08

Jan-09

Jun-09

Oct-09

Feb-10

Jun-10

Nov-10

(%)

0

2

4

6

8

10

12

(%)

RRR - Large (LHS)

RRR - Small and Medium (LHS)

7d repo rate (RHS)

Note: Large=Large Depository Institution; Small and medium= Small and mediumDepository Institution


(5) Rate deregulation remains a medium-term target

A recent article published on the PBoC website regarding the potential acceleration of

interest-rate deregulation prompted discussion in the market and created an overhang

for bank shares, in our view. The article suggested deregulation of the lending market

and allowing a higher cap for deposit rates. The article mentioned that deregulation

can happen by steps through initially longer-term and larger deposits and moving toshorter-term and smaller deposits.

We assume the PBoC hopes to maintain price stability and enhance efficient resource

allocation through interest-rate deregulation, because expectations of rate change

would be the key driver for market rates after the deregulation. We continue to believe

that interest-rate deregulation remains more of a medium-term theme for Chinese

banks. Moreover, we highlight that discounted bills and bond yields are already subject

to market-determined rates so, in a way, over a quarter of Chinese banks assets

already have liberalised interest rates.

The sector is at an FY11F PB of 1.2-2.1x with an implied sustainable ROE range of

13.0-15.5%. Assuming long-term gross NPL formation is around 100bps (50bps higher

than our forecast for 2011F and 2012F), 5% to 8% loan growth, cost/income ratio (CIR)of 40% and fee income of 15% to 20%, we derive a long-term NIM of 2% to 2.2% on

average for the sector. This implies another 30bps to 50bps erosion from the current

level, and is lower than for most other banks in Asia particularly for the countries

Interest-rate deregulation remains

to be a medium-term theme


12/158



experiencing rising inflation and interest rates, such as India, Indonesia, Malaysia, and

Thailand. We note that China is officially on a rising rate cycle since the PBoC

announced a prudent monetary policy for 2011.

Exhibit 20. Current PB implied LT ROE by banks

12

13

14

15

16

ABC

ICBC

CCB

BOC

BO

COM

CMB

C

ITIC

Mins

heng

(%)

Note: Closing prices as of 7 Jan, 2011


Exhibit 21. FY11F ROE erosion (difference between

FY11F ROE and implied LT ROE)

(10)

(8)

(6)

(4)

(2)

0

ABC

ICBC

CCB

BOC

BO

COM

CMB

C

ITIC

Mins

heng

(%)


Look for banks that have over-reacted on the news

As a result of the above policy speculation, certain banks under our coverage have, in

our view, again become easy targets by the markets use of certain assumptions for

risk exposures and the consequent capital, liquidity, and provisioning required. We

point out that:

The regulator has not yet confirmed such news on liquidity (dynamic RRRs), capital

or provisioning requirements;

We believe that the recent subdued share-price performance of Chinese banks

already more than accounts for the worst-case scenario of any of these changes.

Therefore, we would recommend that investors accumulate Chinese banks that have

over-reacted on this news flow as we believe that their fundamental story remains

intact. Our top picks are CMB (key beneficiary for rate hike, SME-oriented business),

BOC (RMB liberalization), ABC (county area exposure which is subject to more

relaxed monetary policy) and ICBC (defensive play).

1Q11 to provide a few clues to the riddle

We understand the markets concern over policy risks and sense that investors aremore frustrated about the continued underperformance of China banks. Yet discounted

bill yields have been falling since the beginning of the year (dropped to 4.6% on 7

January 2011 from 6.5% in December 2010), which coincided with their outstanding

balance as a percentage of total loans reaching a low level (3.3% as at the end of

November 2010). We expect that this may cause monthly new loans to surprise on the

upside for 1Q11F, which could shift sentiment as the market gauges how the recent

lending rate hikes have affected loan demand.

SHIBOR yields have been moving up (one-year SHIBOR rose to 3.6620% on 7

January 2011 from 3.1103% on 1 December 2010), which we attribute to the recent

hikes in RRR and the subsequent tighter liquidity. We expect this to support bargaining

power for banks with more liquidity but, at the same time, it naturally seems better forthe ones more exposed to the SMEs, or subject to more relaxed monetary polices

(such as rural financial institutions).


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Exhibit 22. Price targets, ratings and key forecasts

ABC ICBC CCB BOC BCOM CMB CITIC Minsheng SPDB Industrial SZDB Huaxia

Rating BUY BUY BUY BUY NEUTRAL BUY BUY NEUTRAL NEUTRAL BUY NEUTRAL REDUCE

TP HK$4.80 HK$7.60 HK$8.60 HK$5.20 HK$9.00 HK$26.86 HK$6.30 HK$7.40 RMB14.65 RMB33.00 RMB16.64 RMB8.71

Target P/BV (x) 2.0 2.2 2.1 1.7 1.7 2.8 1.5 1.5 1.4 1.7 1.5 1.0

2010F

NIM (%) 2.59 2.41 2.48 2.12 2.42 2.69 2.68 2.91 2.60 2.69 2.62 2.22Loan growth (%) 19 18 17 17 20 19 22 22 19 19 25 19

Credit cost (%) 0.78 0.30 0.43 0.46 0.60 0.50 0.55 0.35 0.37 0.13 0.47 0.97

NPL ratio (%) 2.06 1.27 1.30 1.43 0.20 0.68 0.85 0.96 0.77 0.46 0.63 1.50

Coverage ratio (%) 155 182 184 156 161 310 152 226 261 271 192 164

Y-Y NPAT growth (%) 44 31 29 19 32 50 33 33 48 46 31 42

EPS (RMB) 0.32 0.49 0.57 0.35 0.76 1.26 0.50 0.62 1.43 3.61 1.97 0.90

BVPS (RMB) 1.64 2.39 2.88 2.24 3.90 6.31 3.00 3.67 9.20 16.44 9.41 7.88

2011F

NIM (%) 2.76 2.54 2.61 2.23 2.64 2.96 2.76 3.03 2.73 2.81 2.68 2.33

Loan growth (%) 20 17 17 18 23 19 22 23 19 20 20 18

Credit cost (%) 0.69 0.40 0.50 0.58 0.65 0.58 0.70 0.40 0.47 0.18 0.40 1.01

NPL ratio (%) 1.79 1.20 1.40 1.44 0.15 0.73 0.81 1.10 0.78 0.58 0.71 1.50

Coverage ratio (%) 179 191 164 156 163 305 177 216 270 204 186 164

Y-Y NPAT growth (%) 34 16 18 18 24 34 22 25 23 19 27 20

EPS (RMB) 0.39 0.56 0.65 0.41 0.88 1.70 0.55 0.64 1.75 4.03 2.32 0.94

BVPS (RMB) 1.96 2.74 3.28 2.46 4.39 7.66 3.33 4.02 10.81 20.13 11.00 8.72

2012F

NIM (%) 2.87 2.63 2.72 2.36 2.74 3.22 2.73 3.09 2.86 2.87 2.67 2.44

Loan growth (%) 22 18 18 19 23 20 20 23 19 20 20 19

Credit cost (%) 0.69 0.40 0.50 0.62 0.60 0.61 0.70 0.40 0.76 0.21 0.40 1.07

NPL ratio (%) 1.82 1.12 1.52 1.48 0.15 0.76 0.77 1.21 0.89 0.68 0.80 1.54

Coverage ratio (%) 175 201 155 155 161 304 203 204 278 170 176 163

Y-Y NPAT growth (%) 24 17 22 22 18 29 22 22 14 17 19 20

EPS (RMB) 0.48 0.65 0.79 0.50 1.04 2.18 0.60 0.78 1.99 4.72 2.77 1.12

BVPS (RMB) 2.27 3.14 3.78 2.74 4.99 9.37 3.73 4.32 10.64 24.44 13.02 9.70Source: Nomura estimates


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Macro and monetary policy

Macro and monetary policy

CPI inflation likely to stay on uptrend throughout 1H11F

Chinas CPI inflation surged to 5.1% y-y in November, the fifth consecutive rise since

June 2010, and the highest reading in 28 months (source: CEIC data). This triggered

renewed market concern about further rate hikes in the coming months in order to rein

in inflation and anchor inflation expectations.

In our view, Chinas CPI inflation should continue its uptrend, albeit in a milder way, in

the coming months, and it is unlikely to peak in January 2011. Our economics team

expects CPI inflation to reach 4.1% y-y and 4.5% y-y, respectively, in 1Q11 and 2Q11.

We believe this is because, although food prices started easing since late November

due to the central governments policy measures to control food prices (eg, wholesale

prices of vegetables in 36 cities in China have been falling for four weeks in a row as

of 5 December 2010; source: CEIC), non-food prices have been steadily rising in

recent months and we expect this to continue in the near future. But we do not think

that Chinas inflation will get out of control.

Exhibit 23. Chinas CPI inflation

(10)

(5)

0

5

10

15

20

25

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

(% y-y)Headline CPI

CPI: Food

CPI: Non food


Exhibit 24. Chinas CPI inflation vs Hang Seng index

10,000

15,000

20,000

25,000

30,000

35,000

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

(Index)

(4)

(2)

0

2

4

6

8

10

(% y-y)HSI index (LHS)

China CPI inflation (RHS)

Source: CEIC, Bloomberg and Nomura research

Nomuras economics team believes that the rise in non-food prices is mainly driven by

rising input costs (raw materials and wages), excess liquidity and reduced overcapacity

in the manufacturing sector. Given an average of above-20% minimum wage hikes

implemented in 29 of 31 provinces in 2010, we expect growth in labour costs to

continue climbing in the quarters ahead, pushing input costs higher. Moreover, given aweakening US dollar and high liquidity due to the US QE2 exercise totalling

US$600bn, global commodity prices are set to rise firmly in the first half of 2011,

contributing to higher inflation in China, in our view.

As we think Chinas CPI inflation should be on a steady but milder rising trend in the

first few months and is unlikely to peak in January 2011, there is a possibility that the

PBoC might disappoint the market with no rate hikes in January or February 2011. We

think the stock market has fallen such that there is little chance of a new low before

2Q11F, as we believe there will be no new policy measures to dampen the market to a

new low until then. As such, we think it is time for investors to accumulate China banks

stocks.


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Two rate hikes in 2010, four more in 2011F

The PBoC has recently raised interest rates twice: once in October, once in December

2010. Both were asymmetrical, hiking longer maturity (>1 year) time deposit rates by a

greater magnitude than lending rates with the same maturity.

Exhibit 25. Recent two hikes of PBoC's benchmark interest rates

Before 20 Oct, 2010 Since 20 Oct, 2010 Change (bps) Since 26 Dec, 2010 Change (bps)

Deposit rate (%)

Demand 0.36 0.36 0 0.36 0

Time

- 3 months 1.71 1.91 20 2.25 34

- 6 months 1.98 2.20 22 2.50 30

- 1 year 2.25 2.50 25 2.75 25

- 2 years 2.79 3.25 46 3.55 30

- 3 years 3.33 3.85 52 4.15 30

- 5 years 3.60 4.20 60 4.55 35

Lending rate (%)

- 6 months 4.86 5.10 24 5.35 25

- 6-12 months 5.31 5.56 25 5.81 25- 1-3 years 5.40 5.60 20 5.85 25

- 3-5 years 5.76 5.96 20 6.22 26

- >5 years 5.94 6.14 20 6.40 26

Source: PBoC, Nomura research

We see the PBoCs recent rate hikes as moves to narrow the deeper negative real

deposit rate and anchor inflation expectations. The 1-year real deposit rate has

remained in negative territory since February and dipped much deeper in recent

months, with November CPI climbing to 5.1% y-y and the 1-year deposit rate

remaining at 2.50% in the same month. We believe the prolonged negative deposit

rate heightens expectations of higher inflation.

Exhibit 26. China's 1-year deposit rate and CPI

inflation

(2)

0

2

4

6

8

10

Nov-03

Nov-04

Nov-05

Nov-06

Nov-07

Nov-08

Nov-09

Nov-10

(%) CPI, % y-o-y

Saving deposit rate: 1 year


Exhibit 27. Breakdown of loans by maturity (as of

June 30, 2010)

0

1,0002,000

3,000

4,000

5,000

6,000

7,000

ABC

ICBC

CCB

BOC

BOCOM

CMB

Citic

Minsheng

(RMBbn) Loans mature in more than 1 year

Loans mature in 1 year

Source: Company Data, Nomura research


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Central Economic Work Conference laid positive foundation forbanks in 2011F

Chinas 2010 Central Economic Work Conference (CEWC) closed on 12 December in

Beijing, having set the tone for economic policymaking in 2011F. While it did not

release specific targets for GDP growth, CPI inflation and new loan growth in 2011F, it

did set forth the main tasks for the governments economic work in the coming year:

Strengthen and improve macro control to maintain stable economic growth;

Promote the development of modern agriculture to guarantee the efficient supply of

agricultural products;

Accelerate the strategic adjustment of economic structure to improve the harmony

and competitiveness of economic development;

Improve basic public service and encourage innovation in the mechanisms of social

management;

Enhance the reform, and promote transformation, of the economic growth model;

Continue to open up and promote global cooperation.

More importantly, in our view, the meeting highlighted that Chinas monetary policy will

officially shift from relatively loose to prudent in 2011F in an effort to control excess

liquidity in the economy. It put a high priority on stabilising prices in the year 2011. As

such, we believe the market is now expecting a RMB7trn new loan quota and multiple

rate hikes in 2011F. Post our conversation with regulators, we believe new loan targets

in 2011F should be slightly lower than those for 2010. We see rigid credit control in

1H11F, given that CPI inflation is likely to remain elevated before mid-year. However,

we believe monetary policy will be reviewed in 2H11 when inflation moderates, and

thus the loan target is likely to be revised up.

Moderate loan quota plus rate hikes should help expand NIM

In our view, tighter new loan quota and multiple rate hikes should be positive for China

banks earnings outlook in 2011F. This is because banks earnings are more sensitive

to changes in margin than to new loan volume, in our view.

On the one hand, tightening of new loans should mean that banks can be more

selective of their customers and thus should enjoy more pricing power while

undertaking new lending. For instance, during its January 2011 analyst briefing

Minsheng stated that it sees much-improved pricing power in January 2011 compared

with the same period in 2010. As a result, the price of its SME product Shang Dai

Tong has climbed to 10% pa, according to comments by Minsheng management.

The current rate hike cycle should have helped China banks margin expansion, given

the rate for demand for deposits was unchanged. As the next Exhibit shows, by end1H10, over 50% of China banks deposits were demand deposits, most notably at ABC

(55.7%), ICBC (50.8%), CCB (53.5%) and CMB (56.2%). This indicates that more than

half of banks deposits would not be subject to higher rates, thus adding nil in extra

funding costs for China banks. Further, 45.5%, on average, of banks loans have a

maturity of less than one year; we believe these loans would be subject to re-pricing

within one year if the PBoC announces additional rate hikes, which would in turn

expand banks NIMs.

Exhibit 28. % shares of demand deposits and short-term loans of China banks

1H10 (%) ABC ICBC CCB BOC BOCOM CMB CITIC Minsheng

% share of demand deposits in total deposits 55.7 50.8 53.5 42.9 49.3 56.2 47.2 47.8% share of short-term loan in total loans 39.7 34.2 38.0 40.3 48.4 53.5 57.3 52.9

Source: Company data, Nomura research

Banks will be more selective oftheir customers, allowing for

better pricing

Current rate hike cycle should

have helped banks NIM

expansion


17/158



What could go wrong in our bullish forecast?

We expect 6-27bps margin expansion in 2011F, based on the following factors:

Mortgage rate will be re-priced in January 2011 for all existing mortgages; hence, a

narrowing discount rate will be applied for new home buyers, in our view.

Front-loaded new loans new loans will be lent out at a higher benchmark rate and

more than 35% of the new loans quota will be used in 1Q11F. More rate hikes in early 2011F.

Still, since PBoC governor Zhou Xiaochuan views the current round of inflation as

liquidity-driven, there exists the risk of the central bank using more of a quantitative

monetary policy, rather than price monetary policy, to absorb excess liquidity from the

economy to ease rising inflation. If this proves to be the case, the PBoC will probably

hike rates by less than the market is expecting, which brings downside risk to our

forecast for NIM expansion in 2011F.

Exhibit 29. Yield on discounted bills (with maturity of 6 months)

0

1

2

3

4

5

6

7

1/4/2010

2/4/2010

3/4/2010

4/4/2010

5/4/2010

6/4/2010

7/4/2010

8/4/2010

9/4/2010

10/4/2010

11/4/2010

12/4/2010

1/4/2011

(%) 4.6% as of 7 Jan, 2010

Source: www.zgpj.net

Overall loan and deposit growth trends in November

Under the PBoCs lower loan quota introduced in January 2010 (RMB7.5tn in 2010

versus RMB9tn in 2009), new loans made by banks moderated when compared with

2009. Although new loans rebounded strongly recently (RMB600bn in September,

RMB588bn in October and RMB564bn in November, compared with RMB545bn in

August), outstanding loan growth dropped to 20% y-y in November 2010, from 34% a

year ago. However, in 2010 total new loans to November amounted to RMB7.47tn,

almost reaching the official target of RMB7.5tn. We expect loan growth in 2010 will be

down significantly but total new loans in 2010 will probably exceed the official target.


18/158



Exhibit 30. Monthly new loans

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

(RMBbn) 2009 2010


Exhibit 31. Loans and deposits: y-y growth

0

5

10

15

20

25

30

35

40

Dec-98

Dec-99

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

(%) Loan Deposit


On the other hand, new deposits in November rebounded to RMB592bn after a

significant drop in October (from RMB1,456bn in September to RMB177bn in October),with deposit growth remaining stable at 20% y-y in October. Given that new loans

continued to surge, LDR (rolling 6 months) on incremental loans over deposit was

further boosted to 149% in November from 143% in October, while outstanding LDR

rebounded to 66.9% in November from 66.7% in October. The level remained stable

throughout 2010. A closer look at banks LDRs reveals that the high ratios (and

leverage) are more of a problem for small and medium-sized banks than large banks.

The loan-to-deposit ratio of large banks stayed at 65% in November; however, the

loan-to-deposit ratio of small and medium-sized banks was 84% in November, much

higher than the regulators requirement of 75%.

Exhibit 32. Monthly new deposits

0

500

1,000

1,500

2,000

2,500

3,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

(RMBbn)2009 2010


Exhibit 33. Monthly new loans and deposits

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

(RMBbn) Loan Deposits



19/158



Exhibit 34. Loan-to-deposit ratio: outstanding and

rolling new loans and deposits

60

65

70

75

80

85

90

95

Jan-98

Mar-99

May-00

Jul-01

Sep-02

Nov-03

Jan-05

Mar-06

May-07

Jul-08

Sep-09

Nov-10

(%)

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

(%)LDR (LHS)

New LDR (rolling 6 months) (RHS)


Exhibit 35. Loan-to-deposit ratio by bank type

63% 63% 62% 63% 64% 63% 65% 65% 64% 65% 65%

84% 85% 83% 82% 84% 84%86%86%88%90%90%

15

25

35

45

55

65

75

85

95

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

(%) Large banks Small & Medium banks


In terms of total loans, the percentage share of corporate loans has been falling since

April 2009, to the current level of 76.5%, while that of household loans has been

consistently rising, to 23.4% as of November 2010. Households are increasingly

becoming loan growth drivers, especially in long-term household loans, which account

for 69% of total outstanding household loans and are continuing to rise at a steady

pace.

Exhibit 36. Percentage of total outstanding loans

15

16

17

18

19

20

21

22

23

24

Dec-04

Mar-06

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

(%)

72

74

76

78

80

82

84

86

(%)Household (LHS)

Corporate (RHS)


Exhibit 37. Percentage of total new loans

0

17

34

51

68

85

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

(%)

0

20

40

60

80

100

(%)Household (LHS)

Corporate (RHS)


Among corporate loans too, long-term loans have continued to account for a higher

percentage of total loans, while short-term loans (for working capital) have continuedto fall. Meanwhile, the percentage share of discounted bills remained at a historically

low level in November. We believe the higher proportion of long-term household and

corporate loans should benefit banks in the form of higher loan yields over the long

term.


20/158



Exhibit 38. Household loan breakdown: as % of total

outstanding loans

4

6

8

10

12

14

16

18

Dec-04

Mar-06

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

(%) Household - short term (LHS)

Household - long term (LHS)


Exhibit 39. Corporate loan breakdown: as % of total

outstanding loans

3

4

5

6

7

89

10

11

Dec-04

Mar-06

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

(%)

25

30

35

40

45

50

(%)Discounted Bills (LHS)

Corporate - short term (RHS)

Corporate - long term (RHS)


In terms of total deposits, while deposit growth was relatively strong in the first elevenmonths of 2010, it was driven by strong enterprise deposit growth, which we think is

probably a result of improving corporate profits since the turn of 2010. According to the

PBoC, enterprise deposit increased by RMB574bn (accounting for 97% of total new

deposits) in November, while household deposits grew by RMB133bn. If this trend

continues, it could weigh on Chinese banks deposit costs as corporate (wholesale)

deposits are generally more expensive than household (retail) deposits. The PBoC

said it is concerned about household deposits moving away from the system due to

high inflation expectations, and has hiked interest rates twice by 25bps each time in

late October and December in order to address the situation.

Separately, the proportions of time and demand deposits remained relatively stable in

November, suggesting stable funding costs for Chinese banks.


21/158



Exhibit 40. Deposit breakdown as % of total

deposits: household and enterprise

30

35

40

45

50

55

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

(%)Household Saving Enterprise


Exhibit 41. Deposit breakdown as % of total

deposits: demand and time

30

35

40

45

50

55

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

(%) Total Demand Total Time


Exhibit 42. As % of total household saving deposits

30

35

40

45

50

55

60

65

70

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

(%) Demand Time


Exhibit 43. As % of total enterprise deposit

30

35

40

45

50

55

60

65

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

(%) Demand Time


Loan/deposit growth trends by bank size

At large banks in China, household deposits made up over half of total deposits while

enterprise deposits accounted for around a third based on our analysis of the 3Q10

financial statements of China banks. In contrast, household deposits only accounted

for 20% or so at small and medium-sized banks, while enterprise deposits accounted

for 54% of the total deposit base. In general, enterprise (wholesale) deposits are more

expensive than household (retail) deposits; as a result, small and medium-sized banksare bearing much more of the higher funding cost than large banks. In addition, as

they attract the majority of household deposits, we believe large banks would benefit

more from the growth in household deposits as the PBoC has reversed its monetary

policy and raising deposit rates will be the tool to address inflation.


22/158



Exhibit 44. Large banks: deposits as % of total

51%52% 51% 51% 50% 51% 51% 51% 51% 50% 50%

32% 31% 32% 32% 32% 32% 32% 31% 31% 32% 32%

15

20

25

30

35

40

45

50

55

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10



Exhibit 45. Small and medium-sized banks: deposits

as % of total

19% 21% 20% 20% 20% 20% 20% 19% 20% 19% 19%

56% 55% 55% 55% 55% 55% 54% 54% 53% 54% 54%

15

20

25

30

35

40

45

50

55

60

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10



Again, the proportions of demand and time deposits at large banks were stable in 2010,with the former accounting for 43% and the latter 38% by end-November based on the

disclosures by large banks. For small and medium-sized banks, the proportion of

demand deposits and time deposits was stable at 39% and 34% as of end-November.

We think some corporates entered into a negotiated deposit rate with small and

medium-sized banks, categorised as other deposits. Small and medium-sized banks

have a higher percentage share of such other deposits, which usually carry higher

interest rates than demand deposits. This again points to higher funding costs for small

and medium-sized banks in China.

Exhibit 46. Large banks deposits as % of total

43% 42% 43% 42% 43% 43% 43% 43% 42% 43% 43%

40% 39% 39% 39% 38%40% 40%40%40%40%41%

15

20

25

30

35

40

45

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

(%)

Total Demand Total Time


Exhibit 47. Small and medium-sized banks deposits

as % of total

41% 40% 40% 40% 40% 41% 40% 39%38% 39%

39%

34%35% 34% 35% 34% 34% 34% 34% 34% 34%36%

15

20

25

30

35

40

45

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

(%)

Total Demand Total Time


Most household deposits tend to be in time deposits (for saving), both for large banks

and small and medium-sized banks, while most enterprise deposits are in demand (for

working capital). In particular, enterprises hold a higher proportion in time deposits at

small and medium-sized banks than in large banks, according to our analysis.

This was particularly the case in 1H10, when smaller banks aggressively took deposit

market share from large peers in order to deleverage their balance sheet and meet the

75% LDR requirement, according to a report by the 21st Century Business Herald inJune 2010. The price war not only pushed up deposit costs for small and medium-

sized banks, but resulted in added operational costs allocated to account managers for

their marketing expenses and the gifts they offered new depositors. Given the three-

time 50bps RRR hikes in November and December, we expect competition for


23/158



deposits will still be keen till end-2011. We saw this trend of keen competition for

deposits resume in 4Q10. Given that tighter liquidity pushed interbank rates higher, we

think Chinese banks were promoting more short-term structured financial products at

higher yields. For instance, CCB offered a 3.9% pa rate for 3-day and 7-day deposit

products on 29, 30, and 31 December 2010.

Exhibit 48. Large banks: as % of total householdsavings

40% 40% 40% 40% 40% 41% 41% 41%42% 41% 42%

60% 60% 60% 60% 60% 59% 59% 59% 58% 59% 58%

15

20

25

30

35

40

45

50

55

60

65

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

(%) Demand Time


Exhibit 49. Small and medium-sized banks: as % oftotal household savings

36% 36% 37% 37% 36% 38% 36% 37% 37% 37% 37%

64% 64% 63% 63% 64% 62% 64% 63% 63% 63% 63%

15

25

35

45

55

65

75

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

(%) Demand Time


Exhibit 50. Large banks: as % of total enterprise

deposits

71% 69% 69% 69% 70% 70% 70% 70% 67%70% 71%

29% 31% 31% 31% 30% 30% 30% 30%33%

30% 29%

15

25

35

45

55

65

75

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

(%) Demand Time


Exhibit 51. Small and medium-sized banks: as % of

total enterprise deposits

59% 60% 60% 60% 60% 60% 59%57%

59% 60%

39%41% 40% 40% 40% 40% 40% 41%

43%41% 40%

61%

15

20

25

30

35

40

45

5055

60

65

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

(%) Demand Time


On the assets front, medium- to long-term loans account for a major chunk of total

loans of large banks, accounting for 73% of their total loans in November 2010 based

on our analysis of their financial statements. On the other hand, medium- to long-term

loans only made up 52% of total loans for small and medium-sized banks and short-

term loans accounted for 45% in November 2010. We think that this is likely because

large banks have more SOE borrowers who need more long-term loans for fixed-asset

investment and infrastructure construction projects. In contrast, small and medium-

sized banks have 40-80% of SME corporate clients who are more in need of short-

term working capital loans.


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Exhibit 52. Large banks: as % of total loans

24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24%

71% 71% 72% 72% 72% 73% 73% 73% 73% 73% 73%

5% 4% 3% 4% 4% 3% 3% 3% 3% 2% 2%

0

10

20

30

40

5060

70

80

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

(%) Short-term Medium-Long term Bill financing


Exhibit 53. Small and medium-sized banks: as % of

total loans

46% 45% 44% 44% 44% 44% 44% 44% 44% 45%

51% 51% 51% 52% 52% 52% 52% 52% 52%

5% 4% 4% 4% 4% 4% 4% 4% 3% 3% 3%

46%

49% 50%

0

10

20

30

40

50

60

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

(%) Short-term Medium-Long term Bill f inancing


Deposit growth still holds the key

Generally, LDRs of Chinese banks declined slightly over the first three quarters of

2010, with most banks under our coverage meeting the 75% LDR requirement. That

said, we reckon deposit costs would have continued to rise for the rest of 2010 as

banks continued to compete for deposits, given the importance of maintaining deposit

growth. In our view, banks should try to avoid the vicious cycle where slower deposit

growth leads to slower loan growth, which, in turn, results in slower deposit growth.

In addition, we reckon that banks with lower LDRs and capacity to lend will continue to

enjoy better loan-deposit spreads, and thus would be more selective in choosing

customers.

Exhibit 54. LDR (1Q10 3Q10)

0

10

20

30

40

50

60

70

80

90

ABC

ICBC

CCB

BOC

BOCOM

CMB

CITIC

Minsheng

SPDB

Industria

l

SZDB

Huaxia

(%) 1Q10 2H10 3Q10

Note: Huaxia did not disclose LDR in 1Q10 and 3Q10 results announcement


The PBoC raised RRR twice in November and once more in December to absorb

excess liquidity in the market. Based on our estimates, banks will have to park an

additional RMB1,050bn of their deposits at the central bank. As a result, banks are

under more pressure to compete for deposits in order to meet the regulatory LDR of

75% by the year end. In our view, the impact will be less significant for large-cap banks

which generally have a lower LDR and wider deposit base. We expect to see risingfunding costs as banks compete to attract more deposits, especially as we expect the

RRR to continue its upward trend in 2011.


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Exhibit 55. Impact of recent three-time RRR hikes on Chinese banks LDR

LDR (%) LDR after three-time RRR hike (%) Impact on LDR (pct)

ABC 55.15 55.99 0.84

ICBC 58.24 59.13 0.88

CCB 61.34 62.27 0.93

BOC 74.68 75.81 1.13

BOCOM 77.44 78.61 1.17CMB 73.71 74.82 1.12

CITIC 73.29 74.40 1.11

Minsheng 72.28 73.38 1.10

SPDB 70.37 71.44 1.07

Industrial 76.31 77.47 1.16

SZDB 74.23 75.35 1.12

Huaxia 72.79 73.89 1.10

Note: LDRs as of 30 September 2010, except Huaxia (30 June 2010)


We think the three-time 50bps RRR hikes have lifted the sector's LDR by 0.84-1.17%,

which, we believe, is one of the reasons the PBoC slowed new-loan growth inNovember and December 2010. Based on our analysis, most large-cap banks are

immune to the hikes because their LDR ratios are much lower than 75% LDR ratios

of ABC (55.15%), ICBC (58.24%) and CCB (61.34%) would be well below the

requirement and because they have plenty of excess reserves. However, there

would have been more pressure on other peers to meet the 75% requirement as the

year-end checks approached. We believe this will restrain those banks with higher

LDR ratios from expanding their loans substantially. Moreover, we see greater

pressure on joint-stock banks not to raise funding costs in the course of attracting

more deposits in an effort to bring down their LDR ratios.


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A preview of the new environment in 2011: different RRR, loan supply and yields

4Q10 preview and 2011 earnings

forecastsWe believe the upcoming 2010 annual results should record solid operating trends for

Chinese banks, with their earnings growing at 19.7-49.8% y-y for the full year. We

expect NIM to have expanded by 8-32bps to reach 2.12-2.91% for 2010F, helped byimproving pricing power resulting from both recent rate hikes and tighter liquidity,

especially in 4Q10. While interest income continues to grow steadily, we estimate fee

income growth should reach 22.1-41.5% y-y, further underpinning the earnings growth

in 2010.

Looking forward, we remain positive on China banks earnings growth in 2011F. We

forecast 16.2-34.1% y-y NPAT growth for China banks under our coverage based on

our assumption of bullish NIM expansion of 6-27bps in 2011F, given our economics

teams expectation of four rounds of 25bps rate hikes, one in each quarter of the year.

We think banks with more exposure to SMEs will be able to enjoy better pricing power

and thus higher NIM expansion in 2011F. In particular, we believe CMBs FY11F NIM

should expand by 27bps, CCBs by 13bps and Citics by 8bps. On the balance sheetside, we think new loan growth is likely to reach RMB7.2-7.5trn, translating into

estimated growth of 15-16% y-y in 2011F. Meanwhile, as regulators may adopt

monthly monitoring and different RRR for individual banks, we see joint-stock banks

facing more intense competition in attracting deposits for the purpose of bringing down

their LDR ratios to meet the 75% requirement in each month/quarter. However, we

reckon that credit costs should largely stay steady at 50bps, on average, in 2011F.

Rate hike sensitivity test for 2011F

We believe the recent rate hikes by the PBoC should benefit China banks as they

should boost NIMs in 2011F. Given that the demand deposit rate remains unchanged

and, as of 1H10, about half of the total deposits of H-share banks are demanddeposits ABC (55.7%), ICBC (50.8%), CCB (53.5%), BOC (42.9%), BOCOM

(49.3%), CMB (56.2%), Citic (47.2%) and Minsheng (47.8%) while around 58.5%,

on average, of these banks loans will be re-priced within one year, we believe the last

two rounds of rate hikes should be largely positive for China banks as their NIMs

should be boosted by 3.7-11.7bps and net profits by 1.4-6.8% in 2011F.

Exhibit 56. Time deposits vs demand deposits (as of

June 30, 2010)

0

2,000

4,000

6,000

8,000

10,000

12,000

ABC

ICBC

CCB

BOC

BOCOM

CMB

Citic

Minsheng

(RMBbn) Time deposits Demand deposits


Exhibit 57. Personal deposits vs corporate deposits

(as of 30 June, 2010)

0

2,000

4,000

6,000

8,000

10,000

12,000

ABC

ICBC

CCB

BOC

BOCOM

CMB

CITIC

Minsheng

(RMBbn) Personal deposits Corporate deposits


We expect NIM to expand by 8-32

bps to reach 2.12-2.91% in 2010

We expect NIM to expand 6-27bps

in 2011


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Exhibit 58. Deposits breakdown (as of 30 June, 2010)

(RMBmn) ABC ICBC CCB BOC BOCOM CMB CITIC Minsheng

Demand deposit 4,651,708 5,503,161 4,702,362 3,337,253 1,332,932 985,467 768,661 630,278

- Corporate deposits 2,434,994 3,448,278 3,137,269 2,055,842 991,074 603,281 689,544 564,740

- Personal deposits 2,216,714 2,054,883 1,565,093 1,281,411 341,858 382,186 79,117 65,538

Time deposit 3,445,418 4,952,712 3,786,779 3,420,745 1,365,527 766,933 860,641 686,611

- Corporate deposits 858,867 1,914,605 1,463,682 1,281,571 840,919 473,956 659,964 535,570- Personal deposits 2,586,551 3,038,107 2,323,097 2,139,174 524,608 292,977 200,677 151,041

Subtotal: corporate deposits 3,293,861 5,362,883 4,600,951 3,337,413 1,831,993 1,077,237 1,349,508 1,100,310

Subtotal: personal deposits 4,803,265 5,092,990 3,888,190 3,420,585 866,466 675,163 279,794 216,579

Other Deposits 235,712 155,325 461,336 4,472 2,671

Overseas Deposit 15,982 221,591 102,560

Total 8,348,820 10,832,789 8,591,701 7,219,334 2,702,931 1,752,400 1,629,302 1,319,560


Exhibit 59. Cumulative impact of the two interest-rate hikes in 2010

ABC ICBC CCB BOC BOCOM CMB CITIC Minsheng

Impact on FY11F NIM (bp) 5.7 3.7 4.0 6.3 8.8 9.6 8.6 11.7

Impact on FY11F net profit (%) 3.1 1.4 1.6 4.0 4.7 4.4 4.6 6.8



Source: Nomura estimates

Our economics team continues to see a higher CPI inflation of 4.5% in 2011F. They

believe the PBoC needs to quicken the process of interest-rate normalization, hence

the expectation of a 25bp rate hike in each quarter of 2011F.

If this proves to be true, we believe it should serve as a positive catalyst for Chinese

banks earnings growth in 2011F. Assuming 25bp symmetrical rate hikes in each

quarter of 2011, which is our baseline forecast, Chinese banks NIM should expand by9-17bp and net profit should grow by 2.7-9.7% in 2011F.

Exhibit 60. Chinese banks NIM expansion and earning growth in 2011F (baseline scenario)






Source: Nomura research

That said, we see a chance of fewer rate hikes in 2011F. If the PBoC turns out to

announce only one round of 25bp symmetrical rate hikes, based on our estimates, itwould boost banks NIM by only 2.5-6.6bp and earnings by 1.1-3.9% in 2011F. If there

are two rounds of 25bp symmetrical rate hikes, we expect FY11F NIM to expand by

4.4-11.6bp and net profits to increase by 1.9-6.8%. Three rounds of 25bp symmetrical

rate hikes should boost NIM by 5.6-14.9bp and earnings growth by 2.4-8.8% in 2011F,

by our estimates.

Exhibit 61. NIM expansion and earning growth provided one 25bp symmetrical rate hike in 2011F








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Exhibit 62. NIM expansion and earning growth provided two 25bp symmetrical rate hikes in 2011F







Exhibit 63. NIM expansion and earning growth provided three 25bp symmetrical rate hikes in 2011F







However, if the expected rate hike turns out to be asymmetrical, we believe it would

have a negative impact on Chinese banks and reduce their NIMs by 7.8-11.7bp and

earnings growth by 5.2-8.1%, assuming 25bp rate hike on deposit rate while the

lending rate remains unchanged. Having said that, we think there is a small chance the

PBoC will take such action. As such, we remain positive on the China banks sector in

2011F.

Exhibit 64. Impact of asymmetrical rate hikes: 25bps rate hike on deposit rate, lending rate unchanged


Impact on FY11F NIM (bp) (9.3) (10.3) (9.7) (7.8) (8.9) (9.5) (11.7) (9.7)

Impact on FY11F net profit (%) (6.0) (5.9) (5.2) (4.9) (5.5) (5.2) (8.1) (6.5)

Impact on FY12F NIM (bp) (9.5) (10.7) (9.5) (8.2) (8.8) (9.6) (11.8) (9.4)

Impact on FY12F net profit (%) (5.4) (6.0) (4.7) (4.7) (5.2) (4.9) (8.1) (6.0)



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Risks from LGFV loans

Risks from LGFV loan default should

remain remoteAlthough we believe monetary policy will shift to being prudent and thus new loan

growth is likely to slow only slightly, in our view in 2011F, there is only a small

chance of a high default ratio for LGFV loans. We understand from management ofChina banks that most LGFV loans are concentrated in eastern coastal areas where

local governments have plenty of fiscal firepower to provide support to these LGFV

loans. For example, 25.9% of ICBCs total LGFV loans were lent to Shanghai, 11.4%

to Shandong province, 10.9% to Tianjin, 10.4% to Guangdong province, 7.7% to Hebei

province and 4% to Beijing, accounting for 61.3% of its total LGFV loans.

Local government fiscal revenue has grown steadily, at a CAGR of 19% from 1999 to

2009 (data for 2010 are not yet available), and we believe the trend should continue in

2010. Revenue from land use accounted for 2.8-2.9% of total fiscal revenue in 2008

and 2009, according to NBSC. With rising land prices in 2010, we expect a higher

percentage of revenue from land use in 2010. As China will continue to carry out

proactive fiscal policy in 2011F, in our view, we reckon that local-governmentsponsored projects will obtain more financing via fiscal channels to ensure

continuation of these projects. Thus, we do not think there should be a significant

increase in LGFV loan defaults just because of slower new loan growth in 2011F.

Exhibit 65. Local government revenue

0

1

2

3

4

5

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

(% share)

0

700

1,400

2,100

2,800

3,500

(RMBbn)

Total local governmentrevenue (RHS)

% share from use of land(LHS)


Exhibit 66. Land price

2,000

2,200

2,400

2,600

2,800

3,000

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

(RMB/sqm)


Moreover, LGFV loans accounted for only what we consider to be a reasonable

proportion of 7.8-19.2% of total loans for China banks under our coverage, according

to disclosures by banks. And, as reported in the 21st Century Business Herald, 24% of

all the LFGV loans are with full coverage and 50% with basic or partial coverage, if

classified by the new method of four categories based on their risks. As a result, we

are not concerned about any significant rise in NPLs of LGFV loans in 2011F.

Exhibit 67. LGFV loans of China banks

ABC ICBC CCB BOC BOCOM CMB CITIC Minsheng Countrytotal

1Q10 3Q10 3Q10 1H10 1H10 3Q10 3Q10 3Q10 1H10

Total LGFV loans (RMBmn) 530,000 830,000 718,600 419,700 139,000 130,000 220,000 190,500 7,660,000

% of total loans (%) 11.9 12.0 13.1 7.8 8.0 10.0 18.3 19.2 17.2



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Latest measures on LGFV loans

Recently the 21st Century Business Heraldreported that the regulator will introduce a

more stringent loan classification method and risk-weighted measurement standards

for LGFV loans, according to a 22 December 2010 article, China Sets New Rules on

Financing to Local Governments.

Exhibit 68. LGFV details of China banks

(RMBmn, except %) ABC ICBC CCB BOC BCOM CMB Citic Minsheng Country total

2010 As of 30 Nov As of 30 Sep As of 30 Sep As of 30 Jun As of 30 Jun As of 30 Sep As of 30 Sep As of 30 Sep As of 30 Jun

Full 389,400 622,500 406,300 209,850 na 116,142 218,680 133,350 1,838,400

Basic 20,750 na 11,258 32,385

Partial50,364

na 2,1323,830,000

No

270,600186,750

312,300

159,486 na 468

1,32024,765

1,991,600

Total 660,000 830,000 718,600 419,700 139,000 130,000 220,000 190,500 7,660,000

% of total loans 11.9 12.0 13.1 7.8 8.0 10.0 18.3 19.2 17.2

NPL ratio 0.58 0.02 na 0.07 na na na 0 na

NPL balance 3,828 166 na 301 na na na 0 na

Source: Company Data, Nomura Research

LGFV loans re-classified into five categories

As stated in the news article, the CBRC may require lenders to classify LGFV loans

into five categories 1) pass, 2) special mention, 3) substandard, 4) doubtful and 5)

loss. Loans are classified based on the sufficiency of a borrowers cash flow, the

amount of the guarantee and the realized value of collateral of the related projects.

According to the article, in order for loans to be classified as pass or special

mention, the total value of cash flow, guarantee and collateral should be over 120% of

the loan amount. Those below 120% should be classified as non-performing loans,

whereby the ratio of substandard loans must be above 80%.

Risk weighting for LGFV loans

Moreover, the article also disclosed that the regulator may assign higher risk weights

to LGFV loans, with 100% risk weightings on loans fully covered by the borrowers

cash flow, 140% on loans with cash flow coverage of 70-100%, 250% on loans with

cash flow coverage of 30-70%, and as much as 300% on loans for which the cash flow

coverage is lower than 30%.

Exhibit 69. Classification and risk weighting of LGFV loans

Coverage Classification method Treatments % of Total Risk weight (%)

FULL Ratio is 100% or above borrower's cash flow is sufficient

Will be reclassified as corporate loan if the requirementsfor categorising into corporate loan can be fulfilled.

24 100

BASIC Ratio is between 70% and 100%and a portion of the loan requiresfiscal guarantee

140

PARTIAL Ratio is between 30% and 70% andrequires partial fiscal guarantee

Can be classified as corporate loan after going throughproject stripping, restructuring and adding in newborrowers and guarantors. For loans that are mainlyguaranteed or repayment sources are local fiscalincome, given that the original repayment relationship ofthe loan remains unchanged, certain features such asguarantee principal, land, high quality enterprise shares,effective income rights and other legal equitant collateralcan be added to reduce risks.

50

250

NO Ratio is below 30% and majority ofthe loan requires fiscal guarantee

There will be attempts to recover or exit from the loan. 26 300

Source: 21st Century Business Herald, Nomura research


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Manageable impact on capital adequacy and earnings

It is still difficult to verify the accuracy of the news report or if the CBRC would

implement this measure this year. However, assuming the regulator does implement

this measure, we believe Chinese banks' capital adequacy levels and earnings will be

affected.

According to our sensitivity analysis, the new measures, if they had been implemented,

would have decreased China banks CAR by 0.52-1.48pct in 2010 and 0.42-1.23pct in2011F and Tier 1 CAR by 0.39-1.13pct and 0.33-0.95pct, respectively, in 2010F and

2011F. Among all the China banks under our coverage, we see ABC as the most

affected while CMB would be the most resilient.

We believe the regulator will introduce the new measures with a phase-in period of 2-3

years, and we do not expect another round of capital raising in the near term.

Exhibit 70. Impact of new risk weighting of LGFV loans on FY10F CAR and T1 CAR

FY10F ABC ICBC CCB BOC BCOM CMB Citic Minsheng

CAR (%) 12.89 12.90 12.27 12.40 13.62 11.26 10.15 11.33

T1 CAR (%) 9.70 9.95 9.42 9.57 9.48 8.36 8.23 8.09

Impact on CAR (pct) (1.48) (1.22) (1.26) (1.09) (1.17) (0.52) (0.74) (1.27)

Impact on T1 CAR (pct) (1.12) (0.94) (0.96) (0.84) (0.81) (0.39) (0.60) (0.91)

Note: assume the current risk weight of LGFV loans to be 50%. As some of the banks did not disclose the detailed proportion under different coverage ratio, we couldonly estimate based on the data available and assume the same proportion as the nationwide results as of 30 June 2010

Source: Nomura Research estimates

Exhibit 71. Impact of new risk weighting of LGFV loans on FY11F CAR and T1 CAR

FY11F ABC ICBC CCB BOC BCOM CMB Citic Minsheng

CAR (%) 12.58 11.96 11.31 11.69 13.42 10.88 10.99 10.88

T1 CAR (%) 9.73 9.37 8.94 9.08 9.44 8.48 9.14 7.76

Impact on CAR (pct) (1.23) (0.94) (0.97) (0.90) (1.02) (0.42) (0.67) (1.12)

Impact on T1 CAR (pct) (0.95) (0.74) (0.77) (0.70) (0.72) (0.33) (0.55) (0.80)Note: assume the current risk weight of LGFV loans to be 50%. As some of the banks did not disclose the detailed proportion under different coverage ratio, we couldonly estimate based on the data available and assume the same proportion as the nationwide results as of 30 June 2010

Source: Nomura research estimates

Sensitivity analysis on FY11F NPAT

After taking into consideration the loan-loss provision ratio requirement of 2.5% which

will likely be implemented by the regulator, the impact on credit costs and hence

earnings would be dampened, in our view. We estimate that ABC would be the most

affected, given its comparatively lower coverage ratio (160% as of 30 September,

2010) and hence less excess provision. For some of the listed banks such as CMB,

Citic and Minsheng, there would be no further impact if they were to meet the 2.5%

loan-loss provision ratio.

We conducted a sensitivity analysis under three scenarios assuming that all banks

would have met the loan-loss provision ratio requirement of 2.5% by the end of 2011.

In ourbase case, where we assume allowance of 35% and 100% to be applied to

NPL derived from ca

Banks China Lucy Feng 2011

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