China Q2 bank earnings to signal end of easy profits

Wed Aug 22, 2012 7:02pm EDT
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By Kelvin Soh

HONG KONG (Reuters) - China's big banks are set to report possibly their last set of bumper profits in coming weeks as weak economic expansion, shrinking deposits and a more competitive interest rate market point to more modest earnings growth in the future.

The so-called "Big Four" -- Industrial and Commercial Bank of China (1398.HK: Quote), China Construction Bank (CCB) (0939.HK: Quote), Agricultural Bank of China Ltd (AgBank) (1288.HK: Quote) and Bank of China (3988.HK: Quote) -- are due to report their first-half earnings between August 23 and August 30.

"The last solid results, with a bumpy road ahead," said Deutsche analyst Tracy Yu. "We remain cautious on the Chinese banks, although solid first-half results might be supporting of the share price in the short term."

Profit growth is already slowing down.

ICBC (601398.SS: Quote), the world's biggest bank by market capitalization, is expected to say first-half net profit rose 15 percent from a year earlier, a Reuters survey of nine analysts shows. But that would be almost half the pace it reported for the first half of 2011.

The slowdown became even more pronounced in the second-quarter, when analysts estimate net profit growth slowed down to 9.5 percent, or 60.98 billion yuan.

CCB (601939.SS: Quote) and AgBank (601288.SS: Quote) are expected to report second-quarter net profit growth of 11 percent and 19 percent, respectively. Fourth-ranked Bank of China (601988.SS: Quote) is likely to post a 4 percent rise in quarterly profit.

A seemingly endless flow of deposits insulated China's major banks from poor lending decisions in recent years. They could rely on government-set fixed net interest margins and a steady economic growth rate of at least 10 percent.   Continued...

A local rides his motor tricycle past a Agricultural Bank of China branch in Xiangfan, Hubei province, in this October 27, 2010 file picture. REUTERS/Stringer