A senior financial analyst predicted that Chinese commercial banks would see profits rise by more than 30 percent in 2007.

Lu Zhongjian, a Guangfa Securities Co. staffer, said that banks will benefit considerably from increased interest rate margins this year, while the expansion of banking services such as bank cards and e-banking -- which do not call on a bank's assets -- and improved asset quality will also contribute to revenues.

The annual report of the China Banking Regulatory Commission (CBRC) showed that by the end of 2006, the total assets of banking and financial institutions in China had reached 43.95 trillion yuan (about US$5.8 trillion), with a pretax profit of 338 billion yuan. Both figures were almost 10 times higher than the corresponding figures in 2003.

Lu said that judging from the annual reports of listed banks such as Bank of China and Minsheng Bank, steady interest income and sharply increased turnover on intermediate banking services had been the major contributors to profits in 2006.

In 2006, China had two interest rate hikes, one of which only affected loans, leading to expanded margins for commercial banks. The analyst said that more interest rate hikes are expected this year.

At the same time, the bullish capital market helped increase banks' sales of mutual funds, insurance policies and other financial products. The CBRC annual report showed that intermediate banking services accounted for 17.5 percent of major commercial bank revenues in 2006.

Traditionally, Chinese banks have largely rely on interest differentials between deposits and loans for their revenues. Last month the CBRC urged banks to earn more money from intermediate services.

The banking watchdog said large- and medium-sized banks should increase the ratio of banking service income to total revenue from 17 percent to 40 to 50 percent over a period of five to ten years.

China's financial innovation and regulatory work will focus on financial derivatives, e-banking, bank cards, capital securitization and comprehensive management, a CBRC official said.

(Xinhua News Agency July 7, 2007)