PREVIEW-Lending clampdown dims China banks’ prospects

* What: Q1 results from China’s four biggest listed banks

* When: From Tuesday to Thursday, April 27-29

* Net seen up 16-40 pct in Q1 as lending boom continued

* Outlook clouded by clampdown on lending, asset-bubble

By Samuel Shen and Edmund Klamann

SHANGHAI, April 23 (BestGrowthStock) – Chinese banks likely saw
strong profit growth in the first quarter, powered by a robust
economic recovery, but government moves to rein in credit
growth have clouded their prospects and the lenders’ rush to
raise capital will weigh on their shares.

China’s top four listed lenders, Industrial & Commercial
Bank of China (ICBC) (1398.HK: ) (601398.SS: ), China Construction
Bank (CCB) (0939.HK: ) (601939.SS: ), Bank of China, and Bank of
Communications (BoCom), are expected to post quarterly profit
growth averaging around 28 percent, as their loan books
continued to expand rapidly after last year’s lending binge.

Chinese banks also benefited from a reviving economy which
enabled them to pare loan-loss provisions, but the economy’s
growth spurt in the first quarter may prompt the government to
take fresh tightening measures that curb lenders’ expansion and
threaten asset quality.

“I cannot think of any really good news for the banking
sector going forward,” said Yu Wei, analyst at Guoyuan
Securities Co. “Loan growth will slow, bad loans may rise, and
massive fundraising is likely to weigh on share prices.”

ICBC, Bank of China (3988.HK: ) (601988.SS: ) and BoCom
(3328.HK: ) (601328.SS: ) have announced plans to raise a combined
107 billion yuan ($15.7 billion), while Agricultural Bank of
China [ABC.UL] is planning an initial public offering as soon
as this year that could fetch more than $20 billion.

Most Chinese banks traded in Hong Kong have underperformed
the benchmark Hang Seng Index (.HSI: ) so far this year, partly
on worries about the flood of new share offerings.

The lag also reflects government tightening policies
already implemented this year to prevent economic overheating,
including lending restrictions, tighter property rules and
higher capital requirements.


ICBC, the world’s most valuable lender, is expected to post
a 16 percent rise in net profit when it reports on Thursday,
according to estimates by four brokerages surveyed by Reuters.

CCB, the world’s second-most valuable lender, is forecast
to report a 25 percent increase in earnings, compared with a 40
percent gain seen for Bank of China and 28 percent for BoCom,
the poll shows.


For some metrics of the world’s most valuable commercial

banks, as per StarMine, click:

For major China banks’ results estimates, see table below

Goldman Sachs (GS.N: ) is ICBC’s biggest foreign shareholder,
while Bank of America (BAC.N: ) owns an 11 percent stake in CCB.
Royal Bank of Scotland (RBS.L: ) has a 2.69 percent stake in Bank
of China and Bank of Communications is owned one-fifth by HSBC
Holdings (HSBA.L: ).

Although growth slowed from the previous quarter, when some
of the Chinese lenders reported a doubling in profit, the pace
is still hectic, partly due to last year’s low base, and
because banks continue to benefit from China’s two-year, $586
billion stimulus package unveiled in late 2008.

Chinese banks extended 2.6 trillion yuan in new loans in
the first quarter, boosting total loans outstanding by 24
percent, putting pressure on the government to take tougher
tightening measures to head off inflation and prevent asset
price bubbles.

Premier Wen Jiabao has already cut the target of new loans
this year to 7.5 trillion yuan, down 22 percent from last
year’s record lending of nearly 10 trillion yuan.

Authorities have also tightened mortgage lending to
discourage speculation and have vowed to rein in price surges
in China’s red-hot real estate market.

A 30 percent fall in property prices would push up
non-performing loans and cut banks’ profit by up to 10 percent,
according to estimates by China International Capital Corp.

Banks’ earnings would also be hurt by possible interest
rate hikes later this year if the increases are asymmetrical,
or deposit rates rise faster than lending costs, analysts said.

Bank Q1 net (bln yuan) YoY % growth Results

ICBC 40.93 16 Apr 29

CCB 32.86 25 Apr 29

BoC 25.99 40 Apr 29

Bocom 10.15 28 Apr 27

* The net profit numbers are average numbers. BOCI, Orient
Securities, Phillip Securities and Haitong Securities
participated in the survey.

Stock Basics

($1=6.83 Yuan)
(Editing by Muralikumar Anantharaman)

PREVIEW-Lending clampdown dims China banks’ prospects