Chinese financials to post sluggish Q4 earnings
A man walks past the Bank of China Tower at Hong Kong＇s financial Central district,Feb 9, 2009. [Agencies]
China＇s banks, relatively insulated from the ravages of the global downturn, are set to report sluggish profits for the final quarter of 2008 and face tighter margins this year on lower interest rates.
The country＇s major insurers, meanwhile, are expected to report sharp falls in 2008 profit as a nearly 70 percent slump in domestic stocks battered investment returns, although this year＇s outlook is brighter thanks to a rebound in the stock market and growth in premiums.
No 5 lender Bank of Communications, owned 19 percent by HSBC, is set to kick off earnings season for Chinese financial firms on Wednesday, with analysts expecting a drop in fourth quarter earnings.
China＇s three biggest listed banks -- Industrial and Commercial Bank of China (ICBC), Bank of China and China Construction Bank -- will follow, with investors watching the outlook for credit costs as banks step up lending as part of the government＇s stimulus efforts.
The banks are also expected to see pressure on margins after a series of interest rate cuts aimed at stimulating demand as China scrambles to meet its target of 8 percent economic growth.
"I think the margin pressure is going to be the biggest negative for earnings in 2009," said Fox-Pitt, Kelton analyst Warren Blight, who has an overweight rating on Chinese mainland-based banks relative to other lenders in the region.
The regulator has asked banks to increase coverage ratios against bad loans, a move seen as prudent but that increases credit costs and will eat into fourth quarter profits, analysts said.
Blight said non-performing loan ratios will be flat for 2008, with some increase expected for 2009. "There＇s going to be lag effect before credit quality problems come through," he said.
To support the economic stimulus efforts, China＇s huge State-run banks have undergone a frenzy of lending through discounted bills -- low-yielding and low-risk corporate bills with tenors of up to six months.
Analysts said the torrid rate of loan growth in the first two months of this year, which also includes loans for infrastructure projects, is unlikely to be sustained for the full year.
While battered financial firms dragged global markets to their lowest levels in six years, Chinese mainland＇s big banks have outperformed other Hong Kong stocks thanks to the country＇s economic strength and the domestic focus of its lenders.
Hong Kong shares in Construction Bank, Bank of China and ICBC have lost between 22-30 percent in the year through Monday, while Bank of Communications is off by 40 percent. The Hang Seng Index was down 42 percent over the same period.
Of the country＇s biggest banks, top foreign exchange lender Bank of China has had the biggest exposure to toxic overseas mortgage assets, booking $7.3 billion in losses and impairments.
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