Singapore state investor remains positive on China banks

SINGAPORE Tue Jul 8, 2014 3:42am EDT

SINGAPORE (Reuters) - Singapore sovereign investor Temasek Holdings Pte Ltd [TEM.UL] said on Tuesday it intends to keep investing in Chinese banks even as it reported a slowdown in its portfolio growth due to a drop in the value of some of its bank holdings.

Temasek, headed by Ho Ching, the wife of Singapore Prime Minister Lee Hsien Loong, owns a 6 percent stake in China Construction Bank (0939.HK) and a 2 percent stake in Industrial and Commercial Bank of China (1398.HK).

It also has holdings in other banks, including a stake of just under 18 percent in British bank Standard Chartered (STAN.L).

"The financial institutions, we believe, have ample capability to weather the current storm and be able to adjust to risks they are facing," Wu Yibing, head of China at Temasek, told reporters after the state investor unveiled its annual outlook and investment strategy.

"So we remain comfortable with our stakes and we will continue to invest in the financial institutions because they are a good proxy for long term growth for the Chinese economy," he added.

Wu said Chinese banks were not a "major drag" on Temasek's results. The state investor reported 3.72 percent portfolio growth in the financial year that ended in March, a decline from last year's 8.6 percent growth.

Chinese banks are facing slowing economic growth, which has triggered a spike in bad debts. Interest margins, which helped prop up profits in the last quarter, are expected to fall in the long run, as regulators liberalise interest rates that guarantee a fat spread between the rate banks pay depositors and the rate at which they lend.

Banks are also competing for depositors' money with wealth management products and online funds, which are pushing savers into deposit products that are costlier for banks to provide.

Temasek reported its portfolio size had increased to a record S$223 billion ($179 billion) in the financial year that ended in March.

Temasek, ranked as the world's tenth biggest state-backed fund by the Sovereign Wealth Fund Institute, has seen its portfolio rise for the last five financial years, recovering from huge blows in 2008/2009 when it was hit by loss-making exits from Bank of America (BAC.N) and Barclays (BARC.L).

(Reporting by Saeed Azhar and Anshuman Daga; Editing by Miral Fahmy)

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