Industrial & Commercial Bank of China and Bank of China posted higher fourth-quarter profits today.
But the state giants were dragged down by holdings in US subprime-related securities.
After a bumper 2007, Chinese banks are expected to face a tougher market in 2008 as Beijing imposes curbs on lending and takes other steps aimed at heading off resurgent inflation.
Bank of China, the country's flagship foreign exchange lender, said it held about $5 billion worth of subprime-related asset-backed securities at the end of 2007, and booked a $1.3 billion provision to cover potential losses on its US subprime-related securities.
The bank lowered its exposure to subprime-related holdings from $9.65 billion in August and $7.95 billion in September after shedding its portfolio of collateralised debt obligations and some of its asset-backed securities holdings.
JP Morgan had expected Bank of China to book a $1 billion provision for its subprime securities in 2007 and a further $1.5 billion in 2008, while Bear Stearns predicted the bank would book impairment losses totalling 21.5 billion yuan ($3.05 billion) for 2007 and 2008.
Beijing-based Bank of China, in which Royal Bank of Scotland is a large shareholder, posted fourth-quarter profit of 10.78 billion yuan, up 3.9 per cent from 10.37 billion yuan a year earlier and topping forecasts for profit of about 8 billion yuan, according to analysts polled Reuters Estimates.
Its Hong Kong-based overseas flagship, Bank of China (Hong Kong), said it reduced its exposure to U.S. subprime asset-backed securities to HK$4.1 billion ($526 million) at the end of 2007 from HK$12.8 billion at the end of June.
BOC Hong Kong posted a 10.3 per cent rise in 2007 net profit to HK$15.45 billion, topping expectations.