Bank of China (BOC), the country's third largest lender by market value, saw a 59 percent drop in its fourth quarter net profit last year due to narrowing net interest margins and rising loan impairments, the lender's 2008 earnings report released yesterday showed.
The bank's net interest margin dipped 13 basis points to 2.63 percent in 2008, down from 2.76 percent in the previous year. A basis point is 0.01 percentage point. BOC recorded 4.42 billion yuan in net profit in the fourth quarter of 2008, down from 10.77 billion yuan from a year ago period.
The government lifted annual lending quotas for Chinese banks last November and unveiled a 4-trillion-yuan economic stimulus package, triggering sharp lending growth in domestic banks.
"BOC has extended more than 300 billion yuan in new loans since the beginning of 2009 till March 19", Li Lihui, governor of BOC, said at the bank's press conference yesterday.
But the easing of credit restrictions for banks doesn't fully offset the contraction in net interest margins following the central bank's "aggressive" interest rate cuts since early September, BNP Paribas analyst Dorris Chen wrote in a report on March 5.
The cut in China's benchmark rate triggered an average 4 percent decline in net interest margins in the fourth quarter for Chinese banks, Chen said.
China's central bank has cut lending rates by 216 basis points since mid-September to stimulate the economy while lowering the deposit rate by 189 basis points, hurting loan profitability at banks.
Chinese banks are unlikely to face an easy 2009. Net interest margin was 4.02 percent for Chinese banks in the first quarter this year, down 12 percent from the fourth quarter of last year, Donghai Securities analyst Li Wen wrote in a report.
Chinese banks' revenues from loan interests declined in the first quarter this year compared to the fourth quarter of last year, Li said.
BOC's net profit in 2008 grew 14.4 percent from a year earlier, missing analysts' predictions of 30 to 50 percent growth for Chinese banks. The lender's 64.4 billion yuan less-than-expected net profit for 2008 came even after it maintained its provision coverage ratio at 121.72 percent for year-end 2008, close to its 121.49 percent bad loan coverage ratio at the end of the third quarter last year.