There are no sacred cows, incoming banking bosses insist, but will there be sacred dragons? Foreign banks, including Royal Bank of Scotland and Bank of America, shelled out an aggregate $9bn on stakes in Chinese banks. Today they are worth some $40bn. That could come in handy. Serendipitously, lock-up periods on these stakes - acquired three years ago when China began partially privatising its big lenders - begin to expire this month. Apart from the fact that Beijing did not whittle back state ownership just to be replaced by Whitehall or Washington, there are other good reasons for foreign banks to divest their stakes.
Even though prices are roughly half the peak levels of a year ago, the outlook suggests they may have further to fall. A decelerating Chinese economy will see slower loan growth and deteriorating asset quality. Last month's cut in interest rates affected only lending rates, thus eroding net interest margins. Even when both rates are cut, as in the most recent move, that hits government bond yields and hence the banks' treasury returns. As pertinently, Chinese savers are shifting more money into higher-yielding term deposits, again increasing funding costs.
