China's Big Four banks hit by slowdown, costs

Fri Apr 27, 2012 8:19am EDT
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By Lawrence White and Kelvin Soh

HONG KONG (Reuters) - China's Big Four banks' reported weaker-than-expected first-quarter earnings on Friday, with the sector facing growing pressure from a slowing economy and rising funding costs.

Regulators have also closed in on the banks' freewheeling practice of charging fees and commissions, after the volume of complaints from customers and politicians grew louder in the last year.

Industrial and Commercial Bank of China Ltd (1398.HK: Quote), the world's biggest bank by market value, reported on Friday a slower 14 percent rise in first-quarter profit, hit by weaker-than-expected fee and commission income.

Agricultural Bank of China (1288.HK: Quote), the nation's No. 4 bank by market value, posted a net profit of 43.5 billion yuan but was the fourth Chinese bank in a row to miss analysts' expectations.

Bank of China (3988.HK: Quote), the country's No. 3 by market cap, posted first-quarter numbers on Thursday that also fell short of the consensus view, hit by flat net interest margins. China Construction Bank (0939.HK: Quote), the last of the Big Four to report on Friday, also missed expectations.

"For the large banks, margins should all come under pressure because of rising funding costs," said Stanley Li, an analyst at Mirae Asset Management in Hong Kong. "Depositors are looking for higher-yielding places to put their money, and that means funds cost more for banks."

Eager to escape the negative real interest rates that are centrally set by Beijing, many depositors have taken to investing in other areas such as real estate or wealth management products instead, crimping banks' ability to lend.

China's regulator only allows banks to lend out 75 percent of the deposits they take in, which means the banks can't grow their loan book freely to meet demand for credit.   Continued...