Friday, 26 September, 2008
Industrial & Commercial Bank of China Ltd., the world's largest bank by market value, is seeking to boost fee income and loans to small companies after a cut in interest rates eroded margins, Chairman Jiang Jianqing said.
The central bank's 27 basis-point cut in the benchmark one- year lending rate on Sept. 15 will reduce ICBC's profit by as much as 500 million yuan ($73 million) this year, Jiang told reporters in Tianjin today, ahead of the World Economic Forum. The cut may have a ``bigger impact'' on profit in 2009, he added.
``The cut will have a 400 million to 500 million yuan profit impact on us this year,'' Jiang said. ``We are increasing our pricing ability for loans, boosting fee income and adjusting our loan structure to remedy the rate cut.''
Chairman Jiang Jianqing has more than doubled ICBC's profit since 2005 as annual economic growth of more than 10 percent bolstered corporate loans and services to the nation's growing number of wealthy people. While ICBC's domestic bias shielded it from the U.S. sub prime crisis, reductions in lending rates may hurt profits on loans in China.
ICBC became the world's most profitable bank after earning a record 64.5 billion yuan ($9.4 billion) in the first half, topping the $7.72 billion earned by closest rival HSBC Holdings Plc. Full-year profit may reach 120 billion yuan at the state- controlled lender, according to a consensus estimate.
Chinese banks were downgraded after the rate cut at JPMorgan Chase & Co., Credit Suisse Group and Merrill Lynch & Co., which cited less profitable lending and higher bad-loan costs in a slowing economy.
Lending Rate Cut
The central bank cut borrowing costs for the first time in six years after economic growth slowed for four consecutive quarters and inflation eased, leaving the deposit rate unchanged. It raised rates six times last year. Consumer price gains cooled to 4.9 percent in August, the slowest pace since June 2007.
``Chinese banks appear to be approaching their first real test of resilience,'' Beijing-based Fitch Ratings analysts Charlene Chu and Chunling Wen wrote in a Sept. 23 report. ``Increased vigilance is warranted as Chinese banks take on the growing challenges ahead.''
After a government bailout three years ago, ICBC is now the world's biggest bank by market value and earned a record 64.5 billion yuan in the first half. It has 16,476 branches nationwide and 112 outside China, and 170 million personal customers -- equivalent to the populations of Russia and Canada combined.
ICBC will be ``cautious'' in buying U.S. debt to avoid losses, and will consider cutting or keeping its sub prime holdings depending on prices, Jiang said today. The lender was ``lucky'' not to have held too much of such securities, he added.
`Necessary' Measures
The U.S. government's measures are ``necessary'' to stop a crisis that may not have bottomed out yet, Jiang said, referring to the bailout of American International Group Inc. and a proposed $700 billion rescue package for the financial sector.
Banks should be more ``sensitive'' to risks on the global financial markets and improve controls amid the turmoil, Liu Mingkang, chairman of the China Banking Regulatory Commission, said in a speech posted on the regulator's Web site on Sept. 25.
Shares of ICBC fell 0.5 percent to close at 4.35 yuan in Shanghai, extending this year's loss to 46 percent. The stock rose 1.3 percent to close at HK$4.74 in Hong Kong.
Source: http://www.bloomberg.com/