Chinese banks are likely to report lower first quarter earnings this year despite brisk credit growth, largely due to the narrowing spreads from the recent rate cuts, according to analysts.

Lenders may report lower Q1 numbers [CFP]

Bank earnings for the first three months are likely to fall by around 10 percent from a year earlier, they said.

There could, however, be exceptions. Minsheng Bank, a mid-sized commercial bank, posted 1.7 percent first quarter net profit growth yesterday.

But on the whole, "the quarterly earnings of Chinese banks are expected to fall in the first half of 2009", said a report from Shanghai Securities.

"I expect to see a 11.3 percent fall in banks' first quarter earnings from a year earlier," said Guo Min, analyst, Shanghai Securities. "Banks can possibly see profit growth again in the second half," she said.

The nation's top three State-controlled banks, Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and Bank of China (BOC), are scheduled to release their first quarter results next week.

Their performances are eagerly anticipated by the market as bank lending rose significantly in the first three months of the year, especially in March.

China's total new lending in the first quarter was 4.58 trillion yuan, up 244.4 percent from the same period in 2008, according to figures from the central bank. In March alone, Chinese banks issued 1.89 trillion yuan of new loans, a new monthly lending record.

Analysts, however, are still not too sure whether the lending surge is enough to boost the profit growth at banks.

Guo said BOC's first quarter earnings could fall by as much as 24.3 percent from a year earlier, while ICBC may take a dent of 10.3 percent.

Shanghai Pudong Development Bank, Minsheng Bank and Nanjing Bank are the only banks expected to post positive profit growth in the first quarter, according to Guo.

Narrowing interest margin is the main reason behind the profit plunge in Chinese banks, analysts said. Net interest margin in Chinese banks fell 41 basis points in the first quarter from the level before the central bank's interest rate cut, United Securities analyst Wu Songkai wrote in a report. A basis point is 0.01 percentage point.

Wu said Chinese banks are likely to see their net interest margin continue to fall throughout the year.

(China Daily April 23, 2009)