Bank of China net profit soars on surge in stimulus lending

Beijing/Hong Kong: Bank of China, the country's No 4 lender by assets, yesterday posted a forecast-beating quadrupling of fourth-quarter net profit, boosted by a surge in lending under Beijing's 4 trillion yuan (Dh 2.15 trillion) stimulus programme.

The state-controlled lender also said it expected yuan lending to rise by about 17 per cent this year, pointing to a continued loose monetary policy that in recent months has led to fears of an asset price bubble.

"The global economic depression has for the most part come to an end, while the domestic economy continues to recover," bank president Li Lihui said in a statement. "It is expected that 2010 will see the continuation of an important period of strategic opportunity for the banking sector."

A record 9.6 trillion yuan in new loans by Chinese banks last year is set to cement the positions of Industrial and Commercial Bank of China and China Construction Bank as the most profitable banks in the world. US powerhouse Goldman Sachs, by comparison, posted a $13.4 billion profit for 2009.

The lending surge has, however, raised worries about growth in bad loans at the banks and set off a capital-raising spree among several mid-sized lenders.

Bank of China, in which Royal Bank of Scotland has a 2.69 per cent stake, reported October-December earnings of 18.9 billion yuan ($6.8 billion), compared with 4.42 billion yuan a year earlier.

Analysts had forecast on average a profit of 17.2 billion yuan, according to Thomson Reuters I/B/E/S.

The fourth quarter of 2008 was impacted by impairment allowances the bank, China's top foreign exchange lender, booked against its exposure to US mortgage-related securities.

The bank's capital adequacy ratio fell to 11.14 per cent in the fourth quarter, down from over 12 per cent in the last three years following a lending spree in an attempt to keep the economy growing.

While last year's growth was driven by volumes, Beijing's moves to rein in lending growth could boost bank net interest margins the difference between deposit and lending rates and a key source of profit for Chinese banks and sustain growth this year, analysts said.

Net interest margin clocked in at 2.04 per cent, up from 2.03 per cent in the first three quarters in 2009, but down from 2.63 per cent in 2008.

Bank of China is the first among major Chinese banks to report earnings. ICBC, the world's most valuable bank, is scheduled to report tomorrow and China Construction a day after that.

Analysts said Bank of China's profit growth would likely be the highest among major Chinese lenders for both 2009 and the fourth quarter alone, mainly because the bank lent the most last year with roughly 1 trillion yuan of new loans.

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