Profits down for Chinese commercial banks this year

By Xinhua

Beijing : Mainland commercial banks will see a lower growth rate this year after a successful 2007 when most saw big rises in net profits, experts say.

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Of the 14 Chinese listed banks, eight commercial banks have estimated or reported around 50 percent profit surges in 2007, according to financial data provider Wind Info.

China’s top lender, the Industrial and Commercial Bank of China (ICBC) estimated a net profit of 78 billion yuan ($10.8 billion) Friday, a rise of more than 60 percent year on year.

China Construction Bank, the nation’s third largest bank, said its 2007 net profit would rise 48 percent to 68.6 billion yuan, due to higher fees and interest rates.

Earlier reports attributed the profit surge to higher revenues from loans and expanding wealth management and credit card services.

But Li Yang, principal of Finance Research Institute of Chinese Academy of Social Science (CASS), was not so optimistic about the prospect of the commercial banks in 2008.

“It will be a lot slower, because things could be totally different. Commercial banks should be wary of any coming challenges,” Li said at a forum organized by business magazine Caijing earlier this month.

“With the market oriented reform of interest rates that gradually narrow down the lucrative interest margin, the banks could lose revenue,” said Li.

As China’s commercial banks go global, turbulence in the international markets affected by the value of the US dollar and the sub-prime crisis could also take their toll on earnings.

Small and medium-sized banks in particular, such as city banks and country banks, would find it more difficult to make profits, since they were more vulnerable to tighter monetary policies adopted this year, said Cao Honghui, an expert also from the Finance Research Institute of CASS.

Asian Development Bank senior analyst Zhuang Jian, however, said, “China’s commercial banks are getting stronger after all reforms and progress in previous years.

“Commercial banks are believed to be more cautious in innovation this year, but the progress could still be healthy., he said.