Bloomberg News

China’s Biggest Banks Set to Report Record Full-Year Profits

October 27, 2011

(Updates with comment from analyst in fourth paragraph.)

Oct. 28 (Bloomberg) -- Industrial & Commercial Bank of China Ltd., the world’s biggest lender by market value, and its closest local rivals are set to report record annual profits after third-quarter earnings rose and bad-debt ratios shrank.

Net income at ICBC rose 28 percent from a year earlier to 54.4 billion yuan ($8.5 billion), the Beijing-based bank said in a statement yesterday. Bank of Communications Co., China’s fifth-largest lender by assets, posted a 31 percent gain to 12 billion yuan, the Shanghai-based bank said.

Shares of China’s five biggest banks jumped an average 3.9 percent today after four of them reported growth in lending and fee income that offset increases in default provisions as economic growth slows. Their profits have surpassed those of the four largest U.S. banks including JPMorgan Chase & Co. by 12 percent. China Construction Bank Corp., the nation’s second- largest lender, reports earnings today.

“ICBC reported a very strong increase in capital ratios, improving credit quality and rising net interest margin,” Mike Werner, a senior analyst at Sanford C. Bernstein & Co. in Hong Kong, wrote in a research report. ICBC “has shown very strong capital discipline in recent years relative to its peers.”

ICBC rose 2.9 percent to HK$5.06, the highest since Sept. 9, at 10:07 a.m. Agricultural Bank of China Ltd., which on Oct. 26 said net income grew 40 percent to 34.1 billion yuan, soared 7 percent, adding to yesterday’s 6.6 percent gain.

ICBC and Agricultural Bank “are the least vulnerable to a slowdown in the system’s deposit growth given their strong deposit franchises,” Tracy Yu, a Hong Kong-based analyst at Deutsche Bank AG, wrote in a research report.

Slowing Economy

China’s gross domestic product grew 9.1 percent in the third quarter, the slowest pace since 2009, as policy makers tightened lending rules and export demand weakened.

Banks’ bad-debt ratio may climb to 1.5 percent by the end of next year, and 1.8 percent by December 2013, according to the median estimate in a Bloomberg survey of seven analysts.

“Even though China’s economy is slowing, the country’s economic growth is still relatively strong,” said Victoria Mio, a fund manager at Robeco Hong Kong Ltd., whose parent company oversees $200 billion. “Credit quality will deteriorate, but we don’t expect to see defaults rise abruptly.”

ICBC’s profit was in line with the 53.7 billion-yuan median estimate of eight analysts surveyed by Bloomberg News. Net interest income, or revenue from lending minus payments to depositors, grew 18 percent to 92.6 billion yuan, while fee income rose 39 percent to 24.5 billion yuan, it said.

Nonperforming Loans Shrink

ICBC’s nonperforming loans shrank to 0.91 percent from 1.08 percent at the end of 2010, making it the fourth of China’s top five banks to post a decline.

Bank of China Ltd., ranked No. 3, earlier this week posted the slowest profit growth in nine quarters, missing analyst estimates as government efforts to cool inflation curbed loan demand and higher interest rates drove up funding costs. Earnings climbed 9.4 percent to 29.8 billion yuan. The stock climbed 1.4 percent today.

BoCom yesterday said net income rose 31 percent to 12 billion yuan, in line with the 11.9 billion-yuan median estimate in a Bloomberg survey.

The bank’s lending to property developers is “stable” and BoCom will limit the share to 8 percent of corporate loans, compared with 6.2 percent at the end of the quarter, to curtail risks from falling house prices, Vice President Qian Wenhui said at a press conference in Shanghai yesterday.

China Minsheng Banking Corp., the nation’s first non-state lender, said yesterday that third-quarter profit rose 80 percent to 7.47 billion yuan, beating analyst estimates, as net fee and commission income almost doubled.

BoCom rose 3.7 percent to HK$5.57, the highest level since Sept. 2, and Minsheng gained 1 percent, rising for a sixth day.

--Editors: Nathaniel Espino, Chitra Somayaji

To contact the reporter on this story: Stephanie Tong in Hong Kong at stong17@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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