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Banks show rosy profit rise in 2008

By Zhang Ran and Yang Zhen (China Daily)
Updated: 2009-02-27 07:57

A bank clerk counts one-hundred-yuan notes at a China Construction Bank branch in Jiangsu province, January 20, 2009. [Asianewsphoto]

The global economic crisis has not taken a big toll on China's banking industry as its lenders have cumulatively posted after-tax profits of 583 billion yuan ($85.23 billion) in 2008, the country's banking regulator said yesterday.

The profits showed a growth of 30.6 percent over the previous year. It would ensure that Chinese banks would rank on top of global bank ratings in 2008, said Liu Mingkang, chairman of the China Banking Regulatory Commission (CBRC) yesterday.

According to Liu, the return on equity (ROE) in the banking sector touched 17.1 percent in 2008, 0.4 percentage points higher than in 2007 and 2 percentage points higher than in 2006, it said. The figure is estimated to be significantly higher than the average ROE of the global banking industry.

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The amount of bad debts on the books of Chinese banks fell sharply in 2008, with the overall non-performing loan (NPL) ratio dropping to 2.45 percent, down 3.71 percentage points on the year.

Liu said he remained confident about banks' performance this year despite the global financial crisis. "For 2009, I believe Chinese banks will grow faster than the country's economy."

But government pressure to boost lending and bolster the slowing domestic economy could lead to a rise in non-performing loans.

China's banks gave away 1.6 trillion yuan in new loans in January, a monthly record, following strong loan growth in the last two months of 2008 as well.

Some economists have expressed concern about the rush of credit and the potential for an increase in bad debts on banks' books, but Liu said that the ample credit would boost the economy.

"Our general analysis and investigations have proved that the fundamentals of the economy are normal," he said.

CBRC will act to prevent a sharp rise in non-performing loans and the international financial crisis would have a limited impact on the country's banks, he said.

"As China's growth will slow this year because of the global financial crisis, the bad debts on bank balance sheets will surely increase, especially in the manufacturing and real estate sectors. This could affect banks' performance," Lu Lixin, analyst with Cinda Securities said.

"On the other hand, a looser monetary policy will ensure more lending business for banks. Lower corporate taxes will also help to increase bank profits," the analyst said.