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NewsMarch 30 2010

BoC quadruples profit

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Bank of China, the second largest bank by Tier 1 capital in China, has posted a net profit for Q4 of Rmb18.87bn ($2.76bn), four times larger than its profit for the same period in 2008.

Bank of China is the first major Chinese bank to post its Q4 results, which have exceeded analysts' expectations.

Bank of China and the larger Chinese banks have benefited from a government-backed expansion of their loan books to stave off the financial crisis. A recent Standard & Poor's report on China's banks cites record loan growth in 2009 of about 30%, approximately $10,000bn, with the number of new loans set to increase by 20% in 2010.

However, the China Banking Regulatory Commission is reining in loan growth due to fears about increasing inflationary pressures in the economy, with an annual target for new loans of Rmb7500bn. The banking regulator has instructed the biggest banks to maintain capital adequacy ratios of at least 11% and China's central bank has ordered an increase in share of deposits that banks are required to set aside as reserves.

Concerns about bad debts and a potential rise in non-performing loans (NPLs) may impede Chinese banks' efforts to strengthen their capital. However, Standard & Poor's reports that: "The Chinese banking system appears adequately capitalised for our forecast NPL ratio level."

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