Mainland banks' best days may be behind them as they are unlikely to see profit growth in the next two years if they take proper bad-loan provisions, analysts say. Winnie Wu, an analyst at Bank of America-Merrill Lynch, expects 'flat bottom line changes' for Hong Kong-listed mainland banks for the next two years because she expects profits to be eroded by rising credit costs. Listed mainland lenders have posted consistently robust profit growth in the past few years, with a 31.7 per cent jump in net earnings in the first three quarters of this year from the same period a year earlier. However, analysts widely expect credit costs to rise from next year because the non-performing loans (NPL) ratio is likely to rise for the first time in a decade. 'Mainland banks have a lot of discretion in deciding how much provision to book,' Wu said. 'If they do it prudently to have a sufficient buffer, they will have no profit growth next year and the year after.' Analysts at Credit Suisse also expect no earnings growth for the lenders next year because of higher credit costs. However, other analysts project earnings growth of about 15 per cent. Wu expects the banks' NPL ratio to increase by 20 to 30 basis points annually in the next two years as loans to beleaguered local-government financing vehicles, property developers, and small- and medium-sized companies turn bad. The NPL ratio of mainland banks fell 10 basis points from March to 1 per cent at the end of June, according to the China Banking Regulatory Commission. 'It would be a mild NPL rise, instead of a credit crisis which intensifies and explodes at some time,' Wu said. 'During the global financial crisis, the NPL ratio in some US banks surged about 300 basis points.' According to Wu, mainland banks could 'bravely' choose to write off their bad debts, tolerate zero profit growth and ultimately solve the NPL problem, or delay tackling the bad-debt problem by loosening credit and extending more new loans. 'In the case of a liquidity party, stock prices may rebound for two to three months. When investors realise problems still exist, share prices will fall again,' Wu said. Mainland bank shares have lost an average of 23 per cent in Hong Kong trading this year before releasing their third-quarter results last week amid concerns about their asset quality and fund-raising needs. Wu said bank shares would continue to be affected by their fund-raising needs. '[Even] if the fund-raising size is only 1 per cent of the 36 trillion yuan (HK$44 trillion) risk-weighted assets of Hong Kong-listed banks, it would be 360 billion yuan - a huge capital gap,' Wu said.