China’s leading banks will likely affirm their lending will remain brisk and be more profitable this year, their immediate capital needs have been met and that souring loans are at manageable levels.
Profits at the 14 listed banks, some of the biggest in the world by market value, are expected by analysts to rise by more than a fifth in 2010 as China’s unwinding of its massive stimulus measures helps interest margins recover.
“Rising margins and potential interest rate hikes this year may help banks,” said Fan Kunxiang, an analyst at Haitong Securities Co.
Interest margins are expected to rise 10 to 15 basis points to around 2.5 percent this year as China starts to tighten monetary policy, analysts forecast.
The banks include Industrial and Commercial Bank of China (ICBC) (1398.HK)(601398.SS), which has a market value of $242 billion, the world’s biggest for banks, Bank of Communications (3328.HK) (601328.SS), Bank of China (3988.HK)(601988.SS) and China Construction Bank (0939.HK) (601939.SS).
The banks are also benefiting from Beijing’s new lending target of 7.5 trillion yuan for 2010, lower than last year’s record 9.6 trillion yuan but still strong compared with previous years.
“The steady pace of new lending growth has guaranteed banks’ interest incomes,” said Chen Xingyu, a Shanghai-based analyst with Phillip Securities Research.
That would be a different picture from last year, which saw interest margins being hit by a series of rate cuts. Analysts estimate banks’ profit to have risen just 13 percent on average in 2009, the slowest pace since at least 2004.
However, fourth-quarter results for many of the banks are expected to show unusually strong upward blips, as most took provisions at the end of 2008 for offshore assets hit by the global financial crisis, making the year-ago quarter a low base.
“2009 was a particularly bad year for Chinese banks, as low net interest margins (NIM) hurt profit and offset the benefit of a lending boom,” said Fan of Haitong Securities.
China slashed benchmark interest rates five times during the last four months of 2008 to help revive growth in an economy hobbled by the global financial crisis, pushing down banks’ interest margins.
Chen of Phillip Securities said the recent rush by Chinese banks to bolster capital through fundraising — after many saw their capital ratios fall dangerously low after their 2009 lending binge — would also help sustain profit growth.
Analysts also noted the fundraising frenzy, which started late last year and was once seen as a key overhang for sector, is nearing an end.
Ratings agency Standard & Poor’s said this week rising bad loans will test the Chinese banks, but they appear to be financially strong enough to withstand the pressure on profits.
S&P expects the ratio of their non-performing and other problems loans to be below 10 percent for the next two years.
Bank of China, the country’s fourth-biggest lender, is expected to report its 2009 profit rose 24.5 percent from a year ago to 79 billion yuan when it kicks off earnings season for major Chinese banks on Tuesday, according to Thomson Reuters I/B/E/S data.
Construction Bank and Bank of Communications, China’s fifth-biggest lender by assets, will report earnings by the end of March.
Below is a table of net profits forecasts (in billions of yuan), based on Thomson Reuters I/B/E/S data. Quarterly forecasts have been calculated by Reuters from announced nine-month results.