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| ICBC, Bank of China Profits Beat Estimates on Lending |
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Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. reported third-quarter profit that exceeded analysts’ estimates, buoyed by a loan surge and lower provisions for potential losses on loans and investments.
Net income at ICBC rose 19 percent to 33.6 billion yuan ($4.9 billion), cementing its status as the world’s most profitable lender. Bank of China, the nation’s third-largest, earned 21.1 billion yuan in the quarter, a gain of 19 percent from a year earlier, it said yesterday. Construction Bank Corp., China’s second-largest bank, also posted profit growth last week.
China’s three largest lenders advanced 3.3 trillion yuan of new loans in the first nine months to finance a $586 billion stimulus plan. That’s helped drive an economic recovery and will accelerate profit growth at the banks to at least 20 percent next year, according to estimates compiled by Bloomberg.
The results are “evidence that things have turned the corner for Chinese banks at the end of the first half,” said Kenny Tang, an analyst at Hong Kong-based Redford Securities Co. More banks will “probably report better net interest margins and lower provisions for bad loans and other investments.”
ICBC, China’s largest bank and the biggest in the world based on market value, rose 4.4 percent to HK$6.35 as of 10:50 a.m. in Hong Kong, the most since Sept. 4, taking this year’s gain to 56 percent. Bank of China rose 4.2 percent to HK$4.51 while Construction Bank added 3.9 percent.
New Loans
New loans doled out by Chinese banks tripled to 7.37 trillion yuan in the first half from a year earlier after the government eased restrictions in November to help revive the economy. New credit slowed to 1.28 trillion yuan in the third quarter after the banking regulator warned about potential risks in defaults and asset bubbles.
“If credit gets further tightened, not only do banks have to be concerned about growth in net interest income, it may also affect asset prices which have been partly driving the growth of the economy,” said Lee Yuk-kei, a Hong Kong-based analyst at Core-Pacific Yamaichi International Ltd.
China’s home prices in 70 cities climbed 2.8 percent in September, the fastest pace in a year, after gaining 2 percent in August, the National Bureau of Statistics said on Oct. 15.
The China Banking Regulatory Commission said this week it plans to tighten rules on personal loans, especially home mortgages and car loans, to prevent them from being used for speculation and to ensure loans enter the real economy.
Bad Loans
Asset quality has improved at all three banks this year, leading to less soured debt and provision charges. ICBC’s bad loans declined to 93.5 billion yuan as of September, accounting for 1.68 percent of total advances. The ratio fell to 1.63 percent at Bank of China and 1.57 percent at Construction Bank.
Investors shouldn’t get over-bullish on the nation’s banking industry, said Sheng Nan, a Shanghai-based analyst at UOB Kayhian Investment. “Asset quality may still be a concern if the pace of economic recovery falls short of expectations.”
The nation’s cabinet said last week it will continue with monetary and fiscal stimulus measures even after the economy exceeded expectations. The State Council also signaled that inflation concerns will be an increasing focus in policymaking as the rebound strengthens.
Third-quarter profit at Beijing-based ICBC beat the 31.5 billion yuan average estimate of nine analysts surveyed by Bloomberg. At Bank of China, the average estimate of eight analysts compiled by Bloomberg was for the lender to report net income of 20.52 billion yuan.
China’s economy grew 8.9 percent last quarter, the fastest pace in a year, picking up from the 7.9 percent growth posted in the second quarter. The economic growth of 6.1 percent in the first three months of the year was the slowest pace of expansion in almost a decade.
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