Banks' profits surge on loans

PUBLISHED : Tuesday, 01 May, 2007, 12:00am
UPDATED : Tuesday, 01 May, 2007, 12:00am

Mainland lenders Huaxia Bank and Shanghai Pudong Development Bank posted strong first-quarter earnings growth on increased loans and a boost in interest margin after the central bank raised lending rates twice this year.

Shanghai Pudong Development Bank, partly owned by Citigroup, said net profit rose 47.6 per cent to 978.3 million yuan or 22.5 fen a share for the three months to March. This compared with a profit of 662.7 million yuan a year ago.

Huaxia Bank, a Beijing-based lender partly owned by Deutsche Bank, said earnings rose 21 per cent on higher interest income, almost double the full-year growth rate last year.

Net income jumped to 455.4 million yuan or 11 fen per share, from 375.2 million yuan or nine fen a share a year ago under mainland accounting standards, the company said yesterday in a statement to the Shanghai stock exchange.

The two banks are benefiting from increased consumer and corporate demand for loans in an economy whose growth accelerated to more than 11 per cent in the first quarter. Bank lending on the mainland hit 1.4 trillion yuan in the first quarter - nearly half of last year's total.

However, the lenders face increasing pressure to meet capital adequacy demands after the central bank raised the reserve requirement this week by half a percentage point to 11 per cent of deposits.

The increase takes effect on May 15. It is the seventh time the central bank has increased the reserve requirement ratio since last June and the fourth time this year.

Huaxia's profit growth is moving closer to the company's earlier forecast of a 22 per cent growth in net profit for this year, compared with 12 per cent last year.

Its interest income grew 30.5 per cent to 4.45 billion yuan, boosted by a 5.9 per cent growth in total loans to 268.9 billion yuan. A widening interest margin after the central bank raised interest rates twice this year has helped to boost interest income.

Interest expense rose 23.2 per cent to 2.21 billion yuan.

Net fee income surged 38.2 per cent to 87.2 million yuan while investment gain rose 40 per cent to 715 million yuan.

Mainland banks such as Huaxia are selling more fee-based products, including funds, as the surging stock markets and the country's rising income generate demand.

Huaxia aims to sell 4.5 billion yuan of a special hybrid bond and 15 billion yuan of regular debt in the first half to replenish capital.