China Economic Review
Charting China’s changing economic terrain · Since 1990
Chinese banks profits to be reined in
May 4, 2010
Industrial & Commercial Bank of China and Bank of Communications, two of the biggest Chinese lenders, posted their best-ever quarterly earnings, joining Bank of China in reporting a bumper quarter.
Chinese banks extended a record $1.4 trillion in new loans in 2009, nearly double the amount from 2008, as the Chinese government encouraged loans as part of stimulus efforts designed to increase consumption during the global financial crisis. The banks continued the brisk pace in the first quarter.
But that pace is set to slow during the year, as Beijing uses a variety of measures to prevent the country’s economy from overheating, leading more analysts to expect that the strong profit growth for Chinese banks may be reaching its limits.
Jin Lin, an Orient Securities analyst in Shanghai, said, "Chinese banks’ profit growth will likely continue into the second quarter, when net interest margins hit a peak. Chinese lenders will see their profit growth flatten in the second half as loan growth is set to slow while interest margins are seen stabilizing.”
I.C.B.C. and rivals, like Bank of China and China Construction Bank, are being urged by regulators to curb lending and replenish capital after a government-directed lending boom last year weakened the banks’ balance sheets and stoked fears that many of those loans would go bad.
New York Times said that in its latest effort to avert a real estate bubble, the Chinese cabinet raised mortgage rates and down-payment ratios for home buyers and promised to rein in prices further.