April 29, 2014 / 10:31 AM / in 4 years

UPDATE 2-China's big four banks' profits surprise as reforms gather pace

* ICBC Q1 net 73.3 bln yuan vs forecast 71.52 bln

* China’s big banks beat f‘casts as interest margins hold

* China central bank says to speed up interest rate reforms (Recasts, adds details of big four banks’ results)

HONG KONG/SHANGHAI, April 29 (Reuters) - Industrial and Commercial Bank of China Ltd (ICBC) beat estimates with a near 7 percent rise in first-quarter net profit, the fourth of China’s biggest lenders to show more resilient profits than expected as interest income held firm.

ICBC said net profit rose to 73.3 billion yuan ($11.7 billion) in the first quarter, compared with an average estimate of 71.52 billion calculated from a Thomson Reuters poll of 11 analysts.

Interest margins are expected to fall in the long run for Chinese banks, as the country’s regulators liberalise interest rates that guarantee a fat spread between the rate banks pay depositors and the rate at which they lend.

China’s central bank said on Tuesday it will speed up interest rate reforms and reiterated the urgency of establishing a deposit insurance system.

Further short-term pressure on interest margins comes from competition for depositors’ money from wealth management products and online funds, which are pushing savers into deposit products that are costlier for banks to provide.

“Internet finance is forcing commercial banks to reform. They need to develop a stronger online mentality, bring net technology into their operations and carry out further business model innovation,” said Raymond Yung, financial services leader at PwC China in a statement ahead of the earnings season.

ICBC is the last of China’s top four banks to report earnings for the first quarter. Last week, Agricultural Bank of China , Bank of China and China Construction Bank all reported better-than-expected results as net interest margins held up in the face of rate reforms.

In the first quarter, banks resisted pressures on interest margins better than the market had expected, analysts said in research notes published after the earnings, by boosting returns from loans amid tight credit conditions in China.

Shares of the big four banks have fallen an average of 3 percent in Hong Kong in the last five days, despite the better than expected results, suggesting investors are more focused on longer-term concerns about asset quality and interest margins.

ICBC also said on Tuesday it had agreed to pay 669 million Turkish lira ($314.7 million) for 75 percent of Turkey’s Tekstilbank as it seeks to expand overseas. ($1 = 6.2530 Chinese Yuan) ($1 = 2.1256 Turkish Liras) (Reporting by Shanghai Newsroom and Lawrence White in Hong Kong; Editing by Miral Fahmy and David Holmes)

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