Big banks losing momentum on profits

China's five largest commercial banks are expected to see their combined net profits for 2012 grow by 12 percent to over 750 billion yuan ($120.72 billion), the official China Securities Journal (CSJ) reported Thursday, citing banking industry insiders.

These results stand in contrast to the 25 percent annual growth pace these big lenders - which include Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank and Bank of Communications - scored in 2011, when their net profits stacked up to an accumulated 680.8 billion yuan, their financial records show.

And according to the CSJ's sources, growth could decelerate further in 2013 - perhaps slowing to 8 to 10 percent if current conditions remain stable.

"The narrowing spread between lending and deposit rates is the main thing that has hit these banks," Guo Tianyong, head of the China Banking Research Center at Central University of Finance and Economics, told the Global Times.

"I also expect profit growth to drop under 10 percent if the country continues to promote liberalization of interest rates," said Guo, who went on to note that the throttling back anticipated by the CSJ's sources was largely in line with current expectations as market watchers await official results from these institutions over the coming week.

China sped up market-based interest rate reforms last year after the People's Bank of China (PBC) allowed deposit and loan rates to float within a government-intervened band, a development which ultimately tightened room for banks to profit from these operations.

Meanwhile though, China's smaller banks are expected to perform better over the same period. "Their profits are likely to grow by as much as 25 percent," She Minhua, a bank analyst with Zhong De Securities, told the Global Times.

Shanghai Pudong Development Bank Co and Ping An Bank Co, two such institutions which have already released their financial results for 2012, posted net profit growth of 25 percent and 30 percent year-on-year respectively.

"Smaller banks have seen their profits expand quickly because their main clients are small- and medium-sized enterprises (SMEs), whom they can charge more for loans," said She, who explained that bank borrowing rates for SMEs could be up to 140 percent higher than the current benchmark lending rate.

"For big banks, however, SME loans only occupy a small percentage of their lending business," She pointed out.