China Merchants Bank H2 profit up 127 pct, tops fcast

By Kennix Chim

HONG KONG, March 19 (Reuters) - China Merchants Bank (3968.HK: Quote, Profile, Research, Stock Buzz), China's sixth-largest lender, posted a 127 percent rise in second-half earnings in 2007, beating expectations on the back of strong non-interest income growth and lower credit costs.

Although China Merchants Bank has no U.S. subprime-related holdings, it faces challenge at home as the government introduces monetary tightening measures, such as reining in loan growth.

China Merchants Bank (600036.SS: Quote, Profile, Research, Stock Buzz), also the country's biggest non-state lender, posted 9.1 billion yuan net profit ($1.3 billion) in the second half of 2007 by Reuters calculation, compared with 4 billion yuan in the same period in 2006.

A poll of 10 analysts by Reuters were on average expecting a 8.08 billion yuan net profit in the second half for total earnings of 14.2 billion yuan in 2007.

The lender said in January it expected its 2007 profit to surge 110 percent from 6.79 billion yuan in 2006, based on Chinese accounting standards, due to an increase in loans and interest spreads, as well as non-interest income.

"The scale of loan is regulated under the background of macro-control policies, which constitutes severe challenge for the profit growth and asset quality of the company," Qin Xiao, the bank's chairman said in the annual results statement.

The bank's net interest income derived from lending operations, jumped 57.6 percent to 33.9 billion yuan in 2007, as Chinese companies continued borrowing heavily to fund their growth in the first three quarters of last year.

Qin added that the fluctuations in the capital market also affected its fee based business and lending growth.