China's Banks Take Number One Spot
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China's banking industry snatched the world's number one spot in 2008 with net profits growing 30.6 percent year on year to reach 583.4 billion yuan, the People's Daily reported on Monday.
Chinese banks also lead the global banking industry in terms of return on investment, which stood at 17.1 percent last year, around 7 percentage points higher than the global average.
In their annual earnings releases for the year 2008, Chinese listed banks reported excellent results. The Industrial and Commercial Bank of China (ICBC) reported a profit of 111.2 billion yuan, a 35.2 percent increase year on year. China Construction Bank registered a 34 percent growth in annual profits to 92.64 billion yuan. Profits of the Bank of China and Bank of Communications grew 14.42 percent and 40.05 percent respectively to reach 64.36 billion yuan and 28.39 billion yuan.
The extraordinary performance of Chinese banks in the midst of the worst financial crisis for decades is due to their recent drive to turn themselves into modern financial enterprises, and enhanced risk control, the paper said.
At the end of 2008, capital adequacy ratios in 193 commercial banks, accounting for 99.5 percent of the country's total banking capital, were higher than national regulations require.
Chinese lenders have been closely following the development of the global financial market and adjusting their asset structure and investment strategies accordingly, the paper said.
Starting from 2008, ICBC reduced its holding of risky foreign currency bonds and set aside enough reserve funds to cover any losses from such investments.
The lender's latest earnings report showed that it had held US$1.195 billion of US subprime mortgage-backed bonds at the end of 2008. It had had US$599 million of Alt-A mortgage-backed bonds and US$55 million of structured investment vehicles (SIVs). But the total value of all these securities – US$1.849 billion – accounted for just 0.13 percent of the bank's total assets.
In the face of the global financial crisis and the domestic economic slowdown, Chinese banks have responded to the central government's monetary easing by increasing credit. Increased lending has, on the one hand, supported the government's efforts to expand domestic demand and spur economic growth and, on the other hand, enhanced banks' profitability.
Since last November, bank lending has been growing rapidly. New loans in January reached a record high of 1.62 trillion yuan.
Meanwhile, Chinese banks have also adjusted their credit portfolios, beefing up support to small and medium-sized enterprises (SME) as well as to farmers in rural areas where access to loans used to be limited.
China Construction Bank (CCB) has so far set up 78 SME centers nationwide to streamline loan procedures for SMEs.