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Chinese banks' profit growth slows

THE Bank of Communications yesterday said it expects its net profit to grow this year although it posted an almost flat profit for the first quarter while the Bank of China posted a lower-than-expected profit for the first quarter due to declining trade finance and narrower interest spread, a common issue for Chinese banks.

The results showed that earnings growth for China's commercial banks is slowing and that a surge of lending helped them to post profits.

Net profit at BoCom inched up 0.53 percent to 7.94 billion yuan (US$1.16 billion) in the first quarter compared with a year ago, based on international accounting standards, the Shanghai-based bank said yesterday.

"We are confident of accomplishing our target set at the start of the year to report a profit growth for the whole year," said Qian Wenhui, vice president of BoCom. "It is a challenging year."

The bank's interest income dropped 11.42 percent to 14.58 billion yuan while its interest spread tumbled 0.76 percentage point to 2.26 percent from a year ago.

Qian said the narrowed interest spread curbed the bank's income growth, which is a common issue faced by commercial banks in China. Interest income is a major profit contributor for Chinese banks.

Chinese banks have generally avoided the worst financial crisis since the Great Depression due to their limited overseas exposure. However, they are being hit indirectly by the financial turmoil, with slowing economic growth and a shift of monetary policy from tight to moderately easing.

The People's Bank of China, the central bank, has cut interest rates five times since September to cut lending costs.

Meanwhile, a surge in lending amid the "moderately easing" monetary policy has helped banks counter the negative impact of lowering spread with increased lending.

BoCom's outstanding loans rose 21.28 percent year on year to 1.57 trillion yuan by the end of last month.

Also yesterday, BOC reported a first quarter profit drop of 14.4 percent to 18.57 billion yuan. The bank, the country's biggest foreign exchange bank, is the hardest hit among Chinese banks by the United States subprime crisis.

The Beijing-based bank said its value of subprime-related debt securities was US$2.21 billion by the end of March, accounting for 0.84 percent of its investment securities.


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