Chinese banks have extended RMB 13.6 billion (US$1.99 billion) in loans this year to finance domestic mergers, but merger activity will not surge as it is too risky, Cai Esheng, vice chairman of the China Banking Regulatory Commission (CBRC), told a forum held in Beijing on the issue of mergers and acquisitions (M&As).
According to Mr Cai, big banks that met the regulatory criteria rushed into the market and, in addition to the funds provided for domestic M&As, had also lent US$420 million this year for cross-border deals up to the end of May.
"Applications to lend another RMB 19 billion for domestic mergers and US$440 million for overseas acquisitions were in the pipeline," Mr. Cai said.
However, Mr. Cai warned that such loans could pose a risk, if M&A funding grew too fast, though there were benefits at the same time.
Most of the loans to date described by Mr. Cai have gone to sectors including steel, power supply, mining and machinery manufacturing in which Beijing is pushing for consolidation.
In one typical case, China Construction Bank Corp. and Bank of Communications helped China's largest steelmaker Baosteel Group, the parent of Baoshan Iron and Steel Co. Ltd, to finance its purchase of Ningbo Iron and Steel Co.