INDUSTRIAL AND Commercial Bank of China (ICBC) yesterday provided evidence of the extraordinary recent expansion in Chinese bank lending when it revealed it had increased its loan book by 19 per cent in the first half of the year.
The world’s largest bank by market value said it had increased lending by Rmb864.5 billion (€88.7 billion) in the first half, an amount roughly equal to the annual gross domestic product of Peru or New Zealand.
ICBC reported a 3 per cent rise in net profit in the first half to Rmb66.42 billion. But this came against a backdrop of falling profitability as state-controlled banks rushed to extend loans at Beijing’s behest to infrastructure and industrial projects.
Chinese banks lent Rmb7,370 billion of local currency loans in the first half, a figure equivalent to 45 per cent of half-year gross domestic product, according to BNP Paribas, which said it knew of no other economy that had created credit on such a scale since the second World War.
ICBC was in fact quite conservative in its loan growth compared with competitors such as Bank of China, China Construction Bank and a host of smaller national and regional lenders, analysts said.
“After talking to many of the banks, we expect to see a 30 per cent expansion of asset balance sheets on average in the first half, but net income was flat or in many cases has contracted,” said Charlene Chu, an analyst at Fitch Ratings. Bank of Communications, China’s fifth-largest lender by assets, which is part-owned by HSBC, reported a 0.3 per cent rise in profit to Rmb15.56 billion in the first half, on the back of a 23 per cent jump in total assets.
Most other banks are to report first-half earnings in the next two weeks and will show a similar deterioration in profitability.
But most analysts are optimistic margins will recover in the second half as the banks rein in the credit spree on the orders of the government, which is beginning to worry about inflation and asset bubbles in the stock and property markets. – Copyright The Financial Times Limited 2009
