* ICBC Q4 net profit 44.43 bln yuan vs 42.6 bln street view
* BOC Q4 net profit 27.88 bln yuan vs 25.25 view
* ICBC NPL ratio 0.94 at end-2011 vs 0.91 at end-September
* Most bad loans linked to real estate, local governments
By Kelvin Soh and Lawrence White
HONG KONG, March 29 Industrial and Commercial Bank of China and Bank of China reported increases in non-performing loans on Thursday, raising fears of worsening credit quality as China's economy slows.
The non-performing loans (NPL) data was released along with stronger-than-expected fourth-quarter earnings from both banks, and company chiefs sought to play down their significance.
"A single cough doesn't mean you have a cold," said ICBC chairman Jiang Jianqing. "You need to look at the broader NPL trends, and ICBC has been able to lower its NPL numbers for 12 straight years."
But both banks saw NPL ratios creep up following a credit clampdown that has led to rising bad loans and falling fee and commission income across most of China's major banks.
China Construction Bank, the world's second larget lender by market value, was particularly hard hit, with total non-performing loans rising almost 10 percent in October-December according to results released on March 26.
"Chinese banks are a proxy to growth in China, and with data looking like they could slow further into the second quarter, it doesn't look like a good time to buy into the sector right now despite some really attractive valuations," said Alan Lam, Julius Baer's Greater China equity analyst.
ICBC said its non-performing loan ratio at the end of 2011 rose to 0.94 percent from 0.91 percent at the end of September, while BOC's inched up one basis point to 1 percent.
Agricultural Bank of China also reported rising non-performing loans and provisions against loans likely to go bad.
Most of the bad loans are expected to be linked to local governments and the real estate sector. These were the major beneficiaries when Beijing ordered banks to lend freely during the 2009 financial crisis to keep the economy humming.
Recent data from China has raised fresh concerns about the pace of the economic slowdown after Premier Wen Jiabao earlier this month forecast a 7.5 percent GDP growth in 2012 for the world's second-biggest economy, an eight-year low.
The HSBC flash purchasing managers index, the earliest indicator of China's industrial sector, showed last week that factory activity shrank for a fifth consecutive month in March.
In a rare occurrence, China's industrial firms saw profits drop 5.2 percent in the first two months of 2012, mainly in petrochemicals, metals and auto firms, according to the National Bureau of Statistics. The last period that China reported nationwide industrial profit fall was in the first eight months of 2009.
The lackluster data has pushed bank shares broadly lower for most of this week. For example, China Construction Bank is currently hovering around 12-week lows.
The increase in bad loans among China's leading banks threatens to overshadow their otherwise strong performances, generally beating analysts estimates of what both their quarterly and annual earnings would be.
ICBC, in which U.S. investment bank Goldman Sachs owns a 2.5 percent stake, reported net profit of 44.43 billion yuan ($7.05 billion) in the fourth quarter of last year, Reuters calculations from company figures showed.
This was higher than the 37.9 billion yuan it recorded in the same period a year ago and compare with a forecast of 42.6 billion yuan, according to a poll of 34 analysts surveyed by Thomson Reuters I/B/E/S.
Bank of China recorded a net profit increase of 11 percent to 27.88 billion billion yuan for the fourth quarter, according to Reuters calculations. This was higher than the 25.2 billion yuan a year earlier, and beat expectations for 25.25 billion yuan.
ICBC said it made a net profit of 208.3 billion yuan in 2011, better than expectations for 206.5 billion yuan, according to the same survey.
Bank of China similiarly beat analysts' consensus for the year as well as the quarter, posting a net profit of 124.18 billion yuan for 2011, higher than the 104.42 billion yuan it recorded a year earlier. This was better than expectations for 121.6 billion yuan, according to a poll of 31 analysts polled by Thomson Reuters I/B/E/S.
Bank of Communications (BoComm) is the star in this year's earnings round, with a 30 percent rise in quarterly earnings and its share price rising 0.7 percent Thursday. That compared with disappointment for China Construction Bank and Aggricultural Bank. The latter is currently trading at a 12-month forward earnings multiple that is a 33 percent discount to its historical median, while CCB is trading at a 47 percent discount, according to StarMine.