China Merchants Bank (CMB), the sixth biggest lender on the Chinese mainland, reported a 13.4 percent yield after selling its US mortgage-backed securities, according to Ma Weihua, president of the bank.

Ma rejected media reports that the bank incurred a loss of 103 million yuan in the US subprime crisis  from its investment in mortgage-backed securities, saying the bank sold the securities last August and has not been exposed to the US subprime lending market since then.

The Hong Kong-listed bank bought its US mortgage-backed securities in 2004 based on predictions that the US real estate market would witness strong growth amid declining interest rates.

The Chinese bank sold all the securities in August 2006, sensing the potential risks in the investment because the US housing market had boomed for two straight years, Ma said, adding that the bank was happy with the 13.4 percent rate of returns.

Ma did not reveal the size of his bank's investment in the US mortgage-backed securities, but the bank's interim report released last Friday shows mortgage accounted for 77.5 percent of its retail loans at the end of the said period.

The management holds that the bad loan ratio of the bank's mortgage is quite low, according to Ma. He also made clear that the bank has no outstanding loans to any financial institutions that hold the US mortgage-backed securities.

Nevertheless, Ma said, the US subprime crisis had sounded the alarm for Chinese banks and that CMB would adopt a more prudent policy for its mortgage business.

The CMB said in the interim report that its net profit surged by 120.38 percent in the six months of the year to read 6.12 billion yuan.

The bank attributed the substantial profit increase to the steady growth of commercial loans, business expansion, assets structure adjustment, a widening interest rate margin, and the continuous rapid growth of non-interest business such as credit card services, according to the statement.

The CMB was rated the best in the general category for its popular dual-currency credit card, according to a survey conducted by the Chinese credit card portal 51credit.com and Shanghai-based poll firm 51poll.com earlier this year.

Two of the Big Four banks, however, have admitted to having been affected by the subprime crisis though neither Bank of China nor China Construction Bank has disclosed the extent of their exposure to the subprime market, according to media reports.

The current crisis began as subprime mortgage defaults started to spiral as a result of higher interest rates and the bursting of the US housing bubble. It has been dragging down world's major stocks for weeks and making it difficult for the US and European banks, which bought much of the repackaged subprime debts, to resell it as its value dropped with serial defaults and bankruptcies. 

Experts hold that the crisis has little impact on the Chinese mainland because its exposure to the US subprime lending market is relatively limited.

(Xinhua News Agency August 15, 2007)