China Citic Bank Corp, the banking arm of the mainland's leading conglomerate Citic Group, said third-quarter profit nearly doubled on more lending and fee and commission income. Quarterly profit totalled 4.04 billion yuan (HK$4.6 billion) under mainland accounting rules, compared with 2.05 billion yuan a year earlier and beating a UBS estimate of 3.54 billion yuan. For the first three quarters, profit soared 137 per cent to 12.45 billion yuan. The bank's 97.6 per cent rise in net profit for the third quarter lagged first-half growth of 163 per cent because of narrowed interest spreads, stock and property market downturns and weaker loan demand from manufacturers. The bank made a US$110 million provision for the diminished value of foreign-currency bond investments in the first nine months, against 15 million yuan in the first half. At the end of September, it held US$1.07 billion worth of mortgage-backed securities backed by Fannie Mae and Freddie Mac and US$151 million of debts issued by the two companies. It had no subprime-related investment in the United States. Citic Bank's outstanding loans rose 13 per cent in the first nine months to 652 billion yuan at the end of last month, while deposits grew 9.6 per cent to 862.8 billion yuan. Non-performing loans accounted for 1.37 per cent of total lending at the end of last month, down 0.11 percentage point from the beginning of the year. However, total bad debts rose 473 million yuan to 8.96 billion yuan. 'In view of the recent fluctuations in domestic and foreign economies and financial markets, the bank will pay close attention to the loan quality at the end of the year,' it said. China International Capital Corp expects Citic Bank's non-performing loan ratio to rise 0.55 percentage point to 1.92 per cent at the end of next year, thanks to a 'relatively high proportion of loans to the manufacturing sector and a medium level of loans to property developers'. CICC expects net profit to fall 4 per cent next year as net interest margins shrink and fee and commission growth slows. 'We expect the margin to drop 40 basis points to 3.01 per cent in 2009, as 77 per cent of its bond investments have to be repriced within a year, making it one of the hardest hit by Beijing's rate cuts,' said CICC analyst Mao Junhua.