Industrial & Commercial Bank of China Ltd. widened its lead as the world’s most profitable lender, posting a 17 percent increase in fourth-quarter earnings as loan growth outpaced rising defaults.
Net income climbed to 44.4 billion yuan ($7 billion), from 37.9 billion yuan, according to Bloomberg calculations based on full-year figures published today by the Beijing-based lender. That compared with the 43.4 billion-yuan average estimate of 22 analysts in a Bloomberg survey.
China’s efforts to bolster banks’ risk buffers and curb inflation after a two-year, $2.7 trillion credit boom have pushed up funding costs, slowed the economy and triggered defaults. Still, ICBC shares have rallied 41 percent since a 2 1/2-year low on Oct. 4 as investors bet policy makers will move to protect the economy from a so-called hard landing.
“ICBC has extended its edge over rivals with its long-standing prudent management and better risk control,” Rainy Yuan, a Shanghai-based analyst at Masterlink Securities Corp., said before the earnings were released. “We are now cautious on the whole banking sector because the economic slowdown will affect everybody to some degree as weak loan demand hurts pricing power.”
China’s 3,800 banks had fourth-quarter net income of $35.4 billion, a third more than the total earnings of 7,357 U.S. lenders including Bank of America Corp. and JPMorgan Chase & Co., data from the China Banking Regulatory Commission and the Federal Deposit Insurance Corp. showed.
ICBC advanced 998 billion yuan of new loans in 2011, increasing the total by 15 percent to 7.79 trillion yuan. Non-performing loans rose to 73 billion yuan from 69.2 billion yuan at the end of September, according to the statement.
The lender said it expects to keep its bad-loan ratio to below 1.2 percent at the end of this year, compared with 0.94 percent in 2011.
China’s gross domestic product expanded 8.9 percent last quarter, the slowest pace in 2 1/2 years, as Europe’s debt crisis damped export demand and the property market weakened. Standard & Poor’s warned March 12 that a jump in bad loans may erode profitability at Chinese lenders.
The economy may bottom out in the first half and the country has already passed through the tightest credit conditions in this cycle, Ba Shusong, a researcher at the Development Research Center of the State Council, said March 22.
Chinese lenders advanced 7.47 trillion yuan of new loans last year, 6 percent less than the amount offered in 2010. The weighted average borrowing cost rose to 8.01 percent in December, up 1.82 percentage points from the beginning of the year, according to the central bank.
Higher borrowing costs coupled with weaker export demand have fueled defaults at smaller businesses, causing bad loans at the banks to rise for the first time since September 2008.
At least 14,400 small and midsized enterprises went bankrupt in Zhejiang province, a hub for exporters, in the first half of last year, Hu Chengzhong, deputy head of the Zhejiang Federation of Industry & Commerce, said this month. About 15 percent of the region’s companies with annual sales of 20 million yuan were losing money, Hu said.
For 2011, ICBC earned 208.3 billion yuan, up 26 percent from the year earlier, fueled by rising loan demand and wider margins. Net income was almost double that of JPMorgan, the largest and most profitable U.S. bank last year.
Goldman Sachs Group Inc. in November raised $1.1 billion selling shares of ICBC, trimming its investment for the third time since its initial purchase in 2006. The U.S. firm still owns about 8.5 billion ICBC shares.
ICBC’s capital adequacy ratio rose to 13.17 percent by the end of December, from 12.51 percent three months earlier. Its core capital adequacy ratio stood at 10.07 percent.
Net interest income, or revenue from lending minus interest paid to depositors, rose 19 percent to 362.8 billion yuan in 2011, as the net interest margin expanded 17 basis points to 2.61 percent. ICBC’s fee income gained 39 percent to 101.6 billion yuan.