While the subprime mortgage crisis continues to plague many United States investment firms this year, the impact on mainland lenders has muted after aggressive subprime write-downs. Stocks of mainland lenders were under heavy selling pressure stemming from the contagion effect of the US subprime crisis in the first quarter. It would now seem the uncertainties are over after banks posted better than expected quarterly earnings. By the end of March, US$5.99 billion in exposure was reported by three of the five state-owned commercial banks. The combined exposure was greatly reduced from US$13.6 billion August last year when the collapse of the US subprime mortgage market began. Bank of China, which has the highest subprime exposure among mainland lenders, comforted the market last week by reducing its US subprime asset-backed securities to US$4.43 billion, down from US$9.6 billion in the first half of last year and US$5 billion at the end of the year. 'For BOC, the subprime concern is subsiding,' said Kevin Chan, a banking analyst at Nomura. Analysts suggest the subprime losses will no longer pressure earnings for BOC because of the accounting methods it used. Instead of booking in the profit and loss account, some of the losses have been booked to shareholder equity. As a result, the government, which owns about 70 per cent of the bank, will shoulder most of the subprime impact. Earnings impact on foreign and domestic investors may be mitigated. Similarly, China Construction Bank said it held only about US$343 million in subprime-related asset-backed securities at the end of March, or 2.13 per cent of its investment securities. This compared with US$980 million at the end of last year. 'We reduced provisioning on CCB's other assets as we believe subprime is no longer an issue for the bank,' said JP Morgan analyst Samuel Chen. Additionally, Alt-A mortgage-backed securities have become the latest worry for BOC. Alt-A securities fall between prime and subprime. The mortgages were originally designed for borrowers with clean credit records, but have other issues that often meant they provided fewer documents or even no documents showing earnings. At the end of March, BOC held US$2.21 billion in Alt-A mortgage-backed securities, representing 0.9 per cent of the group's investment. 'This is an area yet to explode but losses may start to creep in if problems in the subprime mortgage business spread to other parts of the home loan market,' said Charlene Chu, a senior director at Fitch Ratings. Any subsequent write-downs on Alt-A securities would impact on BOC's earnings outlook, analysts said. Net profit for the bank last year rose 31 per cent to 56.25 billion yuan (HK$62.84 billion) from 42.83 billion yuan in 2006. Profit growth was the lowest among all listed mainland lenders.