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China Citic Bank said yesterday that outstanding loans to so-called local government financing vehicles continued to fall and expected fewer to come due in the fourth quarter. 
Outstanding loans to these vehicles - firms set up to borrow from banks on behalf of local governments restricted from doing so - dropped about 12.6 per cent to 150 billion yuan (HK$183 billion) by the end of September compared to the end of June.
The mainland's seventh-largest bank by market capitalisation said third-quarter net income  rose 41 per cent year on year to 9.2 billion yuan, driven by higher lending profitability and profit from financial service fees.  
Analysts said a low level of provisioning this quarter also contributed to higher profits, but might pose problems when the bank  tries to meet regulatory requirements down the road. 
With a loan-loss reserve ratio of 1.49 per cent, Citic's weak provisioning in the third quarter showed that the bank  faced a long road to meeting the banking regulator's requirement of 2.5 per cent. The ratio measures reserves against total loans. 
Michael Werner, a senior analyst at Sanford Bernstein, said in order to reach the regulator's requirement by 2016, Citic would earn 6 per cent less each year.  
The bank's management team said they did not expect major changes in China's credit-tightening policy, even though Premier Wen  Jiabao recently said China needed to fine-tune its economic policy.
Sun Jianlin, lending department manager at Citic, said the government  would not change its overall policy because fighting inflation was its priority. 
The bank's net interest margin, a measure of lending profitability, increased by 35 basis points to 2.96 per cent year on year. Its non-performing loan ratio continued to decline, reaching 0.6 per cent, a 7 basis point drop compared to the previous year.



Citic sees dip in loans to financing vehicles