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ICBC Profit Growth at 3-Year Low as China’s Economy Cools

Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. (939), the country’s two largest lenders, posted the slowest earnings growth in more than two years as the economy faltered.

ICBC’s net income climbed 14 percent to 61.3 billion yuan ($9.7 billion) from 53.8 billion yuan a year earlier, the Beijing-based bank said in a statement yesterday. That compares with the 61.7 billion-yuan average estimate of 10 analysts surveyed by Bloomberg News. CCB’s profit rose 9.2 percent to 51.5 billion yuan, below an average estimate of 53 billion yuan.

China’s three biggest lenders, including Bank of China Ltd., are seeking to extend earnings growth by lending more to small businesses and cutting credit to developers and local- government financing vehicles. Average profit growth at the nation’s six largest Hong Kong-listed banks slowed to 19 percent in the quarter from 34 percent a year earlier.

“The operating environment this year will be more difficult,” Ronald Wan, a Hong Kong-based managing director at China Merchants Securities Co., said by telephone yesterday. “Chinese banks’ profit growth won’t climb back to the level we saw last year, and they’re likely to maintain levels similar to what we had in the first quarter.”

China’s economy last quarter expanded at the slowest pace in almost three years, increasing pressure on Premier Wen Jiabao to ease policy further. Economists at Nomura, Deutsche Bank AG and Morgan Stanley last month increased their GDP forecasts for 2012 partly because they expect policy loosening.

Reserve Requirement Cut

The nation’s banks doled out 2.46 trillion yuan of new loans in the first quarter, an increase of 10 percent from the same period a year earlier. New local-currency lending of 1.01 trillion yuan in March was the highest in a year after the central bank cut lenders’ reserve requirements twice since December. Citigroup Inc. predicts three more cuts this year.

Shares (1398) of mainland lenders have rallied by an average of 52 percent in Hong Kong since hitting a 2 1/2-year low in October on forecasts that economic growth would accelerate following the first quarter.

“Valuations of these banks continue to remain attractive,” said Sandy Mehta, chief executive officer of Hong Kong-based Value Investment Principals Ltd. Non-performing loans “will be pretty well-behaved, but that could be an area of concern.”

ICBC said last month it plans to keep its non-performing loan ratio below 1.2 percent this year. The measure stood at 0.89 percent at the end of March.

Loan Growth

ICBC advanced 369 billion yuan of new loans in the three- month period, taking the outstanding amount to 8.2 trillion yuan. Non-performing loans fell to 72.8 billion yuan from 73 billion yuan at the beginning of the year, according to yesterday’s statement.

Premier Wen is trying to spur lending to smaller companies while restricting home loans that run the risk of inflating a property bubble. The government “will strictly implement and gradually improve policies and measures for discouraging speculative or investment-driven housing demand,” Wen said in a March 5 speech in Beijing.

The risk of lending to China’s indebted property developers is growing as it becomes more difficult for them to find cash amid falling home prices, Liu Mingkang, former chairman of the banking regulator, said last week.

China’s March home prices fell in a record 37 of 70 cities tracked by the government. The eastern city of Wenzhou led declines with a 9 percent slump in values from a year earlier, according to the statistics bureau.

Developer Bankruptcy

Hangzhou Glory Real Estate Co. filed for insolvency last month. It’s the first developer to fail following the government’s property curbs, China Business News reported. CCB told its 38 regional offices to halt loans to small-sized developers, the newspaper said on April 18.

Moody’s Investors Service on April 12 kept its “stable” outlook on China banks, saying a “soft landing” of the economy will allow them to maintain profitability and manage a likely gradual rise in non-performing loans.

Agricultural Bank of China Ltd., the nation’s fourth- biggest bank by assets, said yesterday profit rose 28 percent to 43.5 billion yuan in the first quarter as income from loans and fee-based services increased while costs tied to bad loans dropped.

The country’s five largest lenders, which control about half of the deposit and lending markets, may report combined net income of 758 billion yuan in 2012, up 12 percent from last year, according to data compiled by Bloomberg. The MSCI China/Financials Index, which includes all nine Hong Kong-traded mainland banks, has tripled in the past eight years.

To contact Bloomberg News staff for this story: Jun Luo in Shanghai at jluo6@bloomberg.net; Stephanie Tong in Hong Kong at stong17@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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