China's top lender, Industrial and Commercial Bank of China, posted a 31% jump in 2006 profit on Tuesday, lagging market expectations but topping its own forecast on improving loan quality and sharp growth in fee income.
ICBC, whose earnings growth lagged that of closest rival Bank of China, and its peers are expected to see solid loans growth despite government efforts to crack down on lending to prevent an overheating of the world's fourth-largest economy.
Its loans grew by 10.4% in 2006, below the industry average, and Chairman Jiang Jiangqing said the bank aims for "modest" loan growth but higher profitability by selling wealth management products.
"In the past, when Chinese people were not that well-off, we relied on grain. Now we eat beef and drink milk. This is similar in banking," he told a news conference in Beijing.
The fifth-largest lender, Bank of Communications, by comparison is targeting 20% loan growth in 2007.
Beijing-run ICBC posted net income of 49.26 billion yuan (US$6.37 billion) for 2006 in its first results report since listing on Oct. 27 in a $21.9 billion Hong Kong and Shanghai initial public offering (IPO), the world's largest. It earned 37.6 billion yuan in 2005.
During marketing for its listing, ICBC had forecast 2006 earnings of 47.2 billion yuan, while 17 analysts on average expected ICBC to earn 52 billion yuan, according to Reuters Estimates.
ICBC said it was now eyeing overseas expansion, either by setting up branches, or acquisitions. Late last year, it bought a small lender in Indonesia, PT Bank Halim Indonesia.
The bank also said it was looking to build up its investment banking business through its mainland fund management joint venture with global player Credit Suisse, as well as through its Hong Kong venture, ICEA Finance.
Rival Bank of China posted a 65% jump in 2006 earnings to 42.8 billion yuan, while China Construction Bank will report its 2006 results on April 13.
ICBC saw its non-performing loan ratio decrease to 3.79% for the year, from 4.69% in 2005 and 21.16% in 2004, and said it expects to lower the ratio to below 3.5% this year and below 3% in three years. Bank of China's 2006 NPL ratio was 4.04%.
ICBC's Hong Kong-listed shares have risen 43% since its October IPO, making it the world's third-largest bank by market capitalization -- after Citigroup and Bank of America. ICBC is worth US$224.9 billion.
Global investors have crowded into Chinese bank stocks, which they see as proxies for China's 10 percent economic growth, making them some of the world's most expensive financial stocks.
The country's No. 7 lender, CITIC bank, is readying a US$3 billion Hong Kong and Shanghai share sale.
ICBC's net interest income rose 6.2% to 163.1 billion yuan, while net fee and commission income soared 55% to 16.3 billion yuan, accounting for 9% of its operating income as the bank rolled out wealth management products to increasingly prosperous customers in China.
By comparison, Bank of China's non-interest income accounted for 18% of its total.
Beijing has implemented various measures since 2003 to rein in a red hot economy. The minimum statutory deposit reserve ratio, for example, was lifted from 7% in April 2004 to 9.5% this January.
And the People's Bank of China, the central bank, raised interest rates last month, the third time in less than a year.
BNP Paribas analyst Dorris Chen said ICBC's low loan-to-deposit ratio shields it from these measures. "The operating environment should remain benign. The liquidity tightening measures might have impacts on smaller banks, but not for ICBC," she said before the results report.
ICBC said it planned to pay a dividend of 0.016 yuan per share for the period from its listing to the end of 2006.
The net interest margin narrowed to 2.39% from 2.61%, and compared with Bank of China's 2.45%. The margin lagged Morgan Stanley's forecast of 2.42%. The lender's effective tax rate, at 30.8%, was lower than Bank of China's 40.8% in the same reporting period.