The China Minsheng Banking Corporation posted an almost 70 per cent rise in net profit yesterday for the first half of this year, thanks to stable business growth and despite the State's credit curbs aiming to cool down economic growth.

The private lender also projected a 50 per cent increase in net profit for the first three quarters of this year as "the number of outlets increases and marketing efforts are stepped up further."

The bank's net profit for the first six months of this year came in at 1.09 billion yuan (US$131 million), up 68.39 per cent on a year-on-year basis, it said in the first-quarter report released yesterday. It did not give a break-down of quarterly numbers.

Operating income rose by 67.66 per cent to 8.2 billion yuan (US$988 million), while costs jumped by 65.75 per cent to 6.3 billion yuan (US$759 million), it said.

The bank's robust profit growth defies analysts' expectations that the pace may slow down this year as the government tries to cool down expansive credit growth that is believed to have fuelled excessive fixed investment in sectors like steel and cement.

Frenzied fixed investment and bank loan growth in some sectors starting in the latter half of last year has prompted the State to take a string of tightening measures, including requiring banks to set aside more reserves to restrict their lending capacities and tight land controls.

The growth in fixed investment and bank lending slowed down significantly in the past three months, boosting confidence that the State's measures are working and reducing the possibility of further tightening measures that some fear would lead to an abrupt economic slowdown.

The Minsheng Bank said its loans increased by 24 per cent on a year-on-year basis in the first half of this year to 249.6 billion (US$30 billion), while deposits rose by 23 per cent to 337 billion yuan (US$40.6 billion).

The 0.5 percentage point increase in bank reserve requirements, which the central bank announced in April to curb credited growth, "had a certain effect on our asset operations, but did not have any significant effect on operating profit," the bank said.

But the interest rate fluctuations in the money market, which largely resulted from the State's macro management measures, had forced the bank to readjust asset operations, and led to a slowdown in interbank business income and investment yields, it said.

The bank's ratio of non-performing loans stood at 1.28 per cent of total lending at the end of June, down from 1.29 per cent at end-2003.

The ratio was the best among all Chinese banks, which had an average of 15 per cent of total lending.

Among its measures to reduce bad loans, the bank said it adjusted lending strategies in accordance with the State's macro management policies, improved its risk management mechanisms and promoted the stricter internationally-accepted five-category loan classification system.

Some Chinese banks, especially joint-stock lenders, continued to lend aggressively this year despite warnings from regulators about risks, analysts say. There has also been criticism that they have been restricting new loans excessively in recent months after the authorities stepped up regulatory efforts.

(China Daily August 24, 2004)