BEIJING, July 29 (Reuters) - Chinese banks are on track to post a 20 percent annual rise in after-tax profits in 2011, slowing from last year’s 34.5 percent jump, the official Xinhua news agency said on Friday, citing the national banking association.
“China’s banking industry still maintains stable operations this year. The driving force behind profit growth is easing, but profit growth will still reach about 20 percent,” it said, quoting a report by the banking association.
In 2010, Chinese banks made combined after-tax profits of 899.1 billion yuan ($139.6 billion), Xinhua said.
China’s bank loan growth is slowing gradually this year due to the tightening of domestic monetary policy, while regulators have told banks to increase provisions for bad loans, which could also erode bank earnings, it said.
But that could be partially offset by steady interest rate margins and rising income from intermediary services, it said.
China’s central bank keeps a tight grip on interest rates by setting a ceiling on deposit rates and a floor on lending rates, giving banks a guaranteed margin of 300 basis points.
The margin is the single-biggest driver of Chinese bank profits, with net interest income accounting for more than 80 percent of bank earnings.
Investors are watching closely for signs of whether Chinese banks will be able to head off default risks from local governments, which have borrowed heavily in recent years via their investment vehicles. ($1 = 6.443 Chinese Yuan) (Reporting by Kevin Yao; editing by Patrick Graham)