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Chinese banks took one third of global profit in 2011: study

By Wang Xinyuan (Global Times)

08:01, July 03, 2012

Chinese banks accounted for almost a third of global banking profit in 2011, up from 4.6 percent in 2007, gaining market share from the struggling European lenders, according to The Banker magazine's annual rankings released Monday. But the high profit of the banking sector are not sustainable, analysts said.

Industrial and Commercial Bank of China (ICBC), the world's largest bank in terms of market value, topped the profit table for the second successive year, with pretax earnings of $43.2 billion, according to The Banker.

ICBC was followed by China Construction Bank which realized a $34.8 billion profit, and Bank of China with earnings of $26.8 billion in 2011.

The credit boom after the financial crisis pushed up the net profit of the China's banking sector. The 16 listed banks reportedly had a total profit of 882.4 billion yuan in 2011, about 80 percent of the aggregated profit of the 2,400 companies in the mainland bourses.

The profit growth of Chinese banks in 2011 resulted mainly from the improved bargaining capability of the banks due to strong demand and limited lending resources, under the tightening monetary policy aimed at curbing inflation when economy was growing at fast pace, according to Liao Qiang, director of financial institutions ratings for global rating agency Standard and Poor's (S&P) in Beijing.

About 20 to 30 percent of the corporate borrowers were charged lending rates of 10 percent under the official benchmark rates in early 2011, but only less than 5 percent were entitled to such preferential treatment in the first quarter of 2012, Liao said citing central bank data.

"The profit of the Chinese banks is expected to drop significantly in 2012," Liao told the Global Times.

The banking sector is in a downward cycle with narrowing interest margins, and greater bargaining power of the borrowers, he noted.

The weakening economic growth that could lead to asset quality deterioration, and accelerating financial liberalization will increasingly weigh on Chinese banks' profits and capitalization, said Charlene Chu, Head of China Financial Institutions with Fitch Ratings, in an e-mail sent to the Global Times.

With the recent economic downturn, the policymakers had eased the monetary policy by cutting the benchmark interest rates by a quarter-percentage point on June 8.

Also as an effort to liberalize the interest rates, the People's bank of China, the central bank, has given the banks greater leeway: they can now offer deposit interest at a rate 10 percent above and charge lending interest 20 percent below the benchmark rate.

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