Chinese listed banks, which have lent record high amounts in the first half, are likely to report lower profit growth in the period due to narrowing interest spreads and higher provisioning requirements, industry analysts said.

"We are expecting a 7 to 8 percent year-on-year profit fall among the 14 listed banks in the first half-year," said Wang Liwen, banking analyst with Shanghai-based Guotai Junan Securities Co, citing stretched interest spreads as the major reason.

In 2008, the net interest rate spread for banks ranged from 2.45 percentage points to 3.62 percentage points, with the average figure hovering around 3 percentage points. This year, as the government cut interest rates several times to spur economic growth amid the global financial crisis, the net interest rate spread is expected to be lower, at around 2.36 percentage points.

"A drop of 0.7 percentage points in the average net interest rate spread could mean some 7-billion-yuan decrease in the interest yield for each trillion yuan of new loans," said Wang.

Chinese banks extended a record 7.37 trillion yuan of new loans in the first half, triple the amount offered in the same period a year earlier and 47 percent more than the government's full-year target, after lending restrictions were eased in November to stem an economic slowdown.

However, most securities firms' reports said the country's 14 listed banks might post an average profit decrease ranging from 6 percent to 10 percent year-on-year in the first six months.

According to Wind Info, a financial data provider, the 14 listed banks reported a net profit of 232.7 billion yuan in the first half of 2008, an increase of 73 percent year-on-year. But this year, the net profit could probably stand at 210 billion yuan, down 10 percent on a yearly basis.

Bank of Ningbo, for instance, on July 14 announced no more than a 5-percent decease in net profit in its pre-released semi-annual report to the Shenzhen bourse. It is the first Chinese listed bank to report a profit fall in the first half.

Wang Yifeng, an analyst at TX Investment Consulting, said the improved provision coverage ratio requirement might also cripple profits at listed banks.

To prevent potential risks arising from the lending spree, China Banking Regulatory Commission raised the minimum provision coverage ratio requirement to 150 percent from 130 percent earlier this year.

"The increase will mainly eat into the profits of several large State-controlled banks as they are still not up to the new requirements," said Wang.

But as the squeezed spreads bottom out in the second half, most analysts said listed banks would still post positive growth for the whole year.

"Thanks to the widened interest rate spreads and lower loan cost in the following months, we are expecting a 10-percent growth in profits overall this year," said Liu Yinghua, an analyst with Shenzhen-based Ping An Securities.

(China Daily July 29, 2009)