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Ningbo flags off good bank results

By Wang Zhenghua (China Daily)
Updated: 2008-07-23 10:28

Workers fix the sign of a bank in Shanghai. [China Daily]

Bank of Ningbo, in which Singapore's OCBC Bank owns a stake, posted a 90 percent surge in profit in the first half of the year on growth of interest earnings, fee-based income and lower corporate tax.

The first domestically listed bank to announce the first-half results, this is expected to mark the beginning of similarly good results from other banks as they have forecast a 50-150 percent growth.

Analysts said the listed banks are expected to report an average profit growth of around 70 percent between January and June. But they will be confronted with greater risks in the future because of the nation's economic uncertainties and the tightening monetary policy that is drying up bank loans.

Experts fear bad loans of domestic banks could rise sharply as early as next year because of a possible economic slowdown and the high inflation leading to an even tighter monetary policy.

According to the previews the domestic banks have already released, China CITIC Bank, the country's seventh largest by assets, expects a 150 percent jump in profit, followed by 140 percent growth by Shanghai Pudong Development Bank, 110 percent by China Minsheng Banking Corp and 100 percent by China Merchants Bank.

Despite this tremendous growth, which contrasts with a plummeting stock market, analysts said these banks have to prepare for increasing bad loans.

"After the euphoria over the stellar performance in the first half, banks have to prepare for a scenario of rising bad loans," said Everbright Securities analyst Jin Lin.

"Although maintaining a satisfactory profitability in the second half doesn't seem difficult, the banks must prepare for sluggish growth over the next two years because of a slower economic growth and a tightening monetary policy."

Economic growth slowed down for the fourth straight quarter to 10.1 percent between April and June but inflationary pressure remained as high as 7.1 percent in June, while economists anticipate a slower rise in corporate profits.

"Corporate profits in China are under a great threat for the next two years. We expect slowing growth, deregulation and rising costs to gnaw away at profitability," said BNP Paribas economist Erwin Sanft.

Shi Lei, a researcher with TX Investment Consulting Co, said banks should pay special attention to bad loans expected to rise in industries such as oil and petrochemicals, metals, power and real estate. He said the average profit level of listed banks might drop to as low as 20 percent in 2009.