Two of Chinas largest banks reported soaring profits for 2008, defying the global financial storm, but warned that this year could be much more difficult. The Industrial and Commercial Bank of China, the nations largest bank, said on March 25 it saw net profits rise 36 percent to 110.8 billion yuan (16 billion dollars) in 2008 from the year before.
"In an extremely volatile business environment, the bank continued its vigorous profit growth," it said in a statement to the Hong Kong Stock Exchange. Bank of China, the nations top foreign exchange bank, reported on March 24 its net profit for 2008 rose 14.4 percent to 64.4 billion yuan despite having Asias biggest exposure to US subprime securities.
The results highlighted dramatically different conditions for Chinese banks compared with their Western peers, some of whom have collapsed under the weight of the worst meltdown in seven decades. Over the past 18 months, credit conditions among Chinese banks have stood in sharp contrast to other banks globally, according to Richard Lung, a Hong Kong-based analyst with ratings agency Moodys.
"Sheltered by a buoyant local economy, they have enjoyed double-digit profit growth on solid net interest income gains, non-performing loans falling to historic lows, and rising capital levels," he wrote in a research note. The Chinese economy grew by nine percent in 2008, slipping back into single digits for the first time in six years, but still vastly outperforming a Western world in recession.
Chinese banks have even been able to improve the quality of their loan portfolio, notwithstanding government orders to massively boost credit towards the end of 2008 in order to help the economy weather the crisis. The Industrial and Commercial Bank, for instance, said its non-performing loan ratio fell to 2.29 percent at the end of 2008 from 2.74 percent a year earlier, the ninth consecutive annual drop, it said.
However, the banks will not be able to escape "collateral damage" from the global economic crisis, Lung argued in his note. "Demand for the countrys exports in its key markets has contracted while economic growth is expected to fall below trend. These factors are depressing an already weak property market, even as interest margins narrow as monetary policy is loosened to stimulate," he said. The Chinese economy is likely to expand by just 6.5 percent in 2009, the World Bank said recently, significantly below the government target of eight percent. The Industrial and Commercial Bank of China warned that the coming year would be difficult given the continued impact of the global financial meltdown.
"We must stay alert and think ahead. We are well aware that the bank will face severe challenges in 2009, and at the same time, 2009 presents us with significant development opportunity," its statement said.
Bank of China also warned in the results that "Chinas economic development still faces significant uncertainties." "The impact of the current global financial crisis will continue to worsen and further affect the global real economy," it said in its report.
The leaner times probably already started toward the end of last year, analysts argued. "Since mid-2008, the growth of lending interest income has fallen sharply," said Huang Biao, a Shenzhen-based banking analyst with Guosen Securities, referring to the banking sector as a whole.
"Growth in banks lending interest income slumped in the third quarter and the drop was even sharper in the fourth quarter, as the macro economy slowed sharply in the second half of 2008."
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