China’s banks posted their fastest profit growth in at least four years for 2011 as income from loans and fee-based financial services outpaced an increase in defaults triggered by a slowing economy.
Financial institutions in China including policy banks, commercial lenders, rural credit cooperatives and foreign banks, earned a combined net income of RMB1.25 trillion (US$198 billion) last year, a gain of 39 per cent from a year earlier, the China Banking Regulatory Commission said in its annual report on Tuesday.
Shares of China’s eight largest commercial banks have rallied an average 54 per cent since a two-and-a-half-year low in October as concern that Europe’s debt crisis would deepen the economic slowdown eased. The Asian nation’s efforts to bolster banks’ risk buffers and curb inflation have pushed up funding costs, weakened the property market and spurred defaults.
China’s economy expanded 9.2 per cent last year after growing 10.4 per cent in 2010.
Chinese lenders advanced RMB7.47 trillion of new loans last year, 6 per cent less than the amount offered in 2010. Banks need to keep appropriate credit growth in 2012 and boost lending to smaller enterprises and key infrastructure projects, the regulator said Tuesday.
The nation’s financial institutions had RMB1.05 trillion of non-performing loans by the end of 2011, accounting for 1.8 per cent of their total advances, according to the regulator. Banks must step up efforts to fend off risks associated with local government financing vehicles and the real estate sector this year, it said.
Lending risks to China’s property developers are rising as many have high leverage ratios and face a liquidity squeeze amid falling home prices, Liu Mingkang, former chairman of the banking regulator, said last week.