Chinese bank profits not expected to dim in 3Q
Inflation and harsh regulations are expected to bite into profits in due course, with NPLs likely to stir only in 2012. October 25, 2011 | Peter HoflichWhile Chinese banks have been the most profitable in the world for the past few years—the 98 banks in The Asian Banker 500 hold 38.64% of the group’s profits on 34.86% of the assets, and China’s five biggest banks held the top spots for profits regionally—doubt is growing whether they can continue their run for much longer. In an interview conducted in 2009, the chief risk officer of Bank of China predicted that NPLs resulting from the massive wave of post-crisis lending are expected to materialise in 2012, and this is now just around the corner. Discussions over whether China will suffer a hard landing or a soft landing, last heard in 2004, are reappearing, with banks expected to feel the brunt of an economic slowdown as companies find themselves unable to manage their loan repayments on the back of reduced cash flows. But their liability bases are strong, and in terms of The Asian Banker 500’s list of banks with the largest growth in deposits, eight of the top 10 banks are Chinese, while loan growth has been below other banks in the region. With China suffering neither hard nor soft landing mid-decade, the talk seems to be just that once again. Key concerns are banks’ exposure to real estate, but a strict regulator has kept this in check and according to Asian Banker Research, banks are less exposed to property compared to three years back, with China Minsheng Banking Corporating and Agricultural Bank of China (ABC) sitting on the highest exposure to developer loans. In the first half of 2011, the business income of Chinese listed banks grew by 30.84% YoY, with the largest contributor to profit growth lending margins, built on the back of massive asset scale. So far, the asset quality of listed banks has generally been stable and provision amounts not large. But Chinese banks are not solely dependent on lending for their profits and are growing more sophisticated. In the first half of 2011, the non-interest business income gre... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
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