BEIJING: Bank of Communications (BoCom) , the country's fifth-biggest lender, posted flat first-half earnings yesterday, despite the fact that lending jumped on the back of Beijing's economic stimulus plan.

Credit growth has soared in recent months in response to Beijing's $585 billion pump-priming, with mainland banks granting 7.37 trillion yuan in loans to businesses and individuals in the first six months of this year.

Some analysts worry that the surge in lending could cause banks' bad debts to rise in the longer term.

This spike in lending is evident in the bank's loan data. At the end of June, total outstanding loans for Shanghai-based BoCom jumped 30.15 percent from the end of December 2008 to 1.73 trillion yuan.

Bank of Communications, in which HSBC Holdings \ holds a 19 percent stake, earned 15.56 billion yuan ($2.28 billion) in the first six months of 2009, better than an average forecast of 15.3 billion yuan from six analysts polled by Reuters and compared with 15.5 billion yuan a year earlier.

Despite the surge in loans, the bank's net interest income derived from lending operations fell 9.7 percent to 29.79 billion yuan in the first half of 2009.

The net interest margin narrowed to 2.21 percent in the first half from 3.02 percent by the end of last year, due to a sharp decline in benchmark interest rates, the bank said in a statement.

"Net interest income recovered (in the second quarter) after falling for two quarters since the fourth quarter in 2008," BoCom said. "The upward trend of net interest income is expected to strengthen."

In the April-June quarter, BoCom made a net profit of 7.6 billion yuan ($1.11 billion), comparable to the previous quarter, based on a filing to the Hong Kong Stock Exchange.

The bank's Hong Kong-traded shares have gained more than 60 percent so far this year, compared with about a 40 percent rise in the benchmark Hang Seng Index. The bank's domestic A-shares were up more than 80 percent over the same period.

Its net fee and commission income increased 17.7 percent to 5.5 billion yuan. The impaired loan ratio improved to 1.51 percent from 1.92 percent a year earlier.

Assessing the prospects for economic recovery, BoCom said that the mainland economy is likely to stabilize in the second half, before fully recovering.

BoCom is the first major mainland lender to report first half earnings, with Industrial and Commercial Bank of China set to follow today.

BoCom shares closed down 1.2 percent in Hong Kong yesterday before the earnings announcement was made, compared with a 1.73 percent decline in the benchmark Hang Seng Index.

Bloomberg News

(HK Edition 08/20/2009 page4)