RETAIL BANKING | Cesar Tordesillas, China

ICBC records record high net profit in 2011 amid growing bad loans

ICBC's net profit for January to December period gained 26% to CNY208.27 billion or US$33 billion from CNY165.16 billion.


This is ascribed to wider interest margins.

While the bank's net profit hit a record high, but its financial report showed some signs of increasing credit risks in the country's banking sector.

In the fourth quarter its bad loans rose by CNY3.82 billion or US$603 million, a mild increase considering the bank's mammoth size but one that adds to the uncertainty about the long-term health of Chinese lenders.

While analysts don't expect a banking crisis in China to compare with the one that hit U.S. and European banks in recent years, the country's cooling economy, falling home prices and the challenge of refinancing sizable local government debt will increase bad loans and erode banks' profitability, they say.

"It's no surprise to see nonperforming loans pick up this year given a continuation of government tightening measures in the property sector," said Wang Mingfei, an analyst at Orient Securities.

An expected slowdown in China's economy will likely mean property developers and small businesses will continue to have operating difficulties," he said. "But these are manageable for Chinese banks as their loan-loss provisions are big enough."

ICBC's net interest income rose 19% in 2011 to CNY362.76 billion.

Analysts forecast China's five largest banks to report net profit growth of 14% on average in 2012, down from 25% in 2011.

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