The mainland's Big Four banks, hit by thinning loan margins and rising competition, will be forced to diversify from their core lending business by further expanding overseas and offering a wider palette of financial products. In the past week, Industrial and Commercial Bank of China, China Construction Bank (CCB), Agricultural Bank of China and Bank of China reported earnings growth of 7.6 to 15.3 per cent for the third quarter. Two of the four missed analyst estimates. While the mainland's state banks remain among the most profitable in the world, they face challenges from shrinking margins and bad loans as the economy slows from the supercharged pace of the past decade. The government's gradual move away from interest rate controls in favour of a market-driven system has also eroded lending margins. Policymakers' support for the idea of privately owned banks to increase lending to small businesses will also ramp up competition. Mainland home appliance retailer Suning Commerce and internet giant Tencent have announced plans to set up private banks. "The banking sector has some problems for an investor, particularly rate liberalisation and deregulation that will encourage more competition from new entrants," said Li Cong, managing partner at Hong Kong-based hedge fund Zenas Capital Management. "The sector will open up to new private companies after reforms, and if the new banks have really market-oriented policies, their profits could be better than the traditional state-owned banks." CCB, the country's second-largest lender, reported its slowest third-quarter earnings growth in more than five years. In a bid to seek new profits abroad, it was in advanced talks to buy Brazil's Banco Industrial e Comercial (BicBanco), a person familiar with the matter said last week. BicBanco has a market value of 1.7 billion reais (HK$6.04 billion), and if the purchase went through, it would be the biggest Chinese bank deal in Latin America. Agricultural Bank is also eyeing a bid for Hong Kong-listed Wing Hang Bank. As well as looking abroad, mainland lenders are looking to boost fee and commission income by expanding their wealth management businesses. Most of these wealth management products are short-term savings vehicles often created by third parties but issued through banks. They have soared in popularity in recent years as an alternative to investment in real estate, stock markets and deposits.