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Banks' earnings to rise by single-digit

THE Chinese banking industry will post single-digit growth in net profit this year amid an economic slowdown and a tighter spread but lenders are likely to set aside less provisions, an analyst said.

Earnings growth at Chinese banks are likely to slow to a single digit in 2009, said Victor Wang, a UBS banking analyst, yesterday in Shanghai.

Chinese banks will see their interest spread, a main income channel, squeezed as the People's Bank of China cut interest rates five times last year. The central bank's "moderately easing" monetary policy also means more rate cuts are possible. A wider discount on individual mortgage lending is also adding pressure on the banks.

Wang said that as Chinese banks had already raised provisions against bad assets in the fourth quarter last year, he expects less need for them to further increase the provisions. He said he is still bullish about Chinese banks, whose valuations are now relatively low. However, he thinks that now is still not the best time to invest in banks.

"Investors may wait until the middle of the first half (of the year) when banks have reported their first-quarter performance and it's clearer to see the trend of the (Chinese) economy," Wang said.

Fitch Ratings said in a report yesterday that the asset quality of Chinese banks will inevitably come under pressure from the considerably weaker economic environment and rising pressure among corporate borrowers.

The ratings firm noted that credit risk continues to represent the single largest threat to the safety and soundness of banks in China.


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