Chinese state banks report strong profit growth

China's Bank of China, Agricultural Bank report double-digit profit growth

Associated Press

BEIJING (AP) -- Two of China's major state-owned lenders, Bank of China and Agricultural Bank, reported double-digit earnings growth Wednesday as the industry prepares for reforms that are likely to squeeze profits.

Bank of China Ltd. said its profit for the three months ended Sept. 30 rose 13.8 percent to 39.5 billion yuan ($6.3 billion). Agricultural Bank of China Ltd. said earnings rose 15.3 percent to 45.6 billion yuan ($7.2 billion).

China's banks are among the world's most profitable but earnings growth is expected to slow as Beijing introduces more market forces into the state-owned industry.

Lenders face pressure from a cooling economy and a possible rise in unpaid loans following a government-orchestrated credit surge that helped China rebound quickly from the 2008 global crisis.

Economic growth sank to a two-decade low of 7.5 percent in the three months ended June. It rebounded to 7.8 percent in the latest quarter but analysts say that recovery might weaken before the end of the year.

Banks face pressure as regulators prepare to make lending more market-oriented. That could push down rates banks can charge on loans and force them to pay more for deposits, narrowing their current interest margins of about 3 percent, which are among the world's largest.

Until recently, the state-owned banking industry lent mostly to state industry and forced depositors to subsidize borrowers by holding down rates paid on savings accounts. Reformers want to open up that system to make more credit available to entrepreneurs. Forcing banks to compete for deposits would shift more money to Chinese consumers.

Ruling party leaders are due to meet in November to try to produce a long-term economic development blueprint. Economists and business groups say state-dominated financial industries are among the most likely candidates for changes.

In July, regulators announced an end to controls on lending rates, which would allow borrowers with stronger credit records to shop around for cheaper loans. That would cut their costs but would squeeze bank profits.

Chinese regulators also have promised other changes in banking, including possibly allowing privately owned lenders. But the ruling party has yet to decide on the timing and scope of reforms.

Lenders are trying to build up credit card and other business to reduce reliance on lending.

Bank of China said net interest rose 8.4 percent to 70.9 billion yuan ($11.2 billion) for the quarter. It said income from fees and commissions rose much faster, expanding 26.9 percent to 19.9 billion yuan ($3.2 billion).

Agricultural Bank said net interest income rose 11.6 percent to 95.6 billion yuan ($15.2 billion). Fees and commissions rose 2.5 percent to 19.7 billion yuan ($3.2 billion).

Bank of China's assets rose 7.4 percent from the start of the year to 13.6 trillion yuan ($2.2 trillion). Agricultural Bank's assets rose 10.2 percent over the same period to 14.6 trillion yuan ($2.3 trillion).

Another member of China's "big four" state-owned commercial lenders, China Construction Bank Ltd., reported on Monday a quarterly profit of 56.8 billion yuan ($9 billion) but said earnings growth slowed.

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Bank of China Ltd.: www.boc.cn/en/index.html

Agricultural Bank of China Ltd.: www.abchina.com/en/default.htm

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