Banks set to report robust profit growth

08:30, August 26, 2010      

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Industrial & Commercial Bank of China Ltd (ICBC) and Bank of China Ltd may report profit growth of at least 15 percent on Thursday, helping bolster confidence in the country's banks amid tighter government scrutiny of lending.

ICBC, the world's largest bank by market value, may post a 29 percent increase in second-quarter income, according to the average estimate among 10 analysts surveyed by Bloomberg. Bank of China is expected to post profit growth of 15 percent for the period. Both lenders are based in Beijing.

Chinese bank shares have slipped this year as the industry regulator clamped down on loans to local-government financing vehicles and property speculators, and ordered them to move off-balance-sheet debts back onto their books.

"The market is trading banks down this year because of fears of local government loans, off-balance-sheet loans and property loans," said Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd. Based on the outlook for banks' earnings, "this is a tremendous story", he said.

ICBC may post profit of 40.25 billion yuan ($5.9 billion) for the three months to June 30, based on subtracting first-quarter figures from analysts' estimates for six-month earnings. Bank of China, the country's third largest bank by assets, may have second-quarter net income of 26.1 billion yuan.

JPMorgan Chase & Co, the biggest US bank by market capitalization, posted profit of $4.8 billion for the second quarter. Citigroup Inc earned $2.7 billion.

Shares of ICBC have dropped 13 percent in Hong Kong this year, trimming its market value to $212 billion. Bank of China has slipped 4.8 percent, matching the decline in the benchmark Hang Seng Index and valuing the company at $129 billion.

ICBC, Bank of China and China Construction Bank (CCB) have announced plans to raise a combined $30 billion selling shares and bonds convertible into stock as global regulators push for stronger capital buffers to avert another financial crisis.

CCB Chairman Guo Shuqing said this week China won't have a subprime loan crisis similar to that of the United States, because home mortgages account for a relatively small share of gross domestic product.

Credit Suisse Group AG analysts Sanjay Jain and Anand Swaminathan said on Aug 20 they prefer Chinese banks over other financial companies in Asia because of "compelling" valuations and as they "expect some resolutions to the various risks that have plagued the stocks for some time". They recommended investors add ICBC and CCB shares.

Source: China Daily/Bloomberg


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