Banks beat expectations with strong jump in earnings

Chinese lenders remained robust in the first quarter despite forecasts that profit growth will slow this year in the face of narrowing net interest margins.

The favorable results benefited partly from a rebound in the property market and stable growth in consumer loans, according to analysts.

Bank of Communications Ltd, one of the "Big Five" banks, beat market expectations on Thursday by reporting 12 percent profit growth in the first quarter.

The bank earned 17.71 billion yuan ($2.87 billion) in the three months ending March 31, around 8 percent higher than the 16.33 billion yuan forecast by five analysts polled by Thomson Analytics.

Bank of China Ltd, another "Big Five" lender, said on Thursday that its first-quarter earnings rose 8.2 percent, thanks mainly to increases in net interest income.

Earlier this week, China Minsheng Bank Corp, the country's seventh-largest listed bank by market capitalization, posted a 20 percent jump in earnings, raking in 11 billion yuan in the three month ending March 31.

Industrial Bank Co earned 11 billion yuan in the first quarter, a year-on-year rise of 32.44 percent.

However, analysts remain cautious despite the impressive results, saying they do not reflect the sector's average profitability.

Galaxy Securities Co Ltd forecast an average 9.6 percent increase in lenders' earnings in the first quarter. The investment bank was more optimistic than Guotai Junan Securities Co Ltd, which forecast 8.9 percent, and Shenyin Wanguo Securities Co Ltd, which forecast 7.23 percent.

The gloomy market sentiment over Chinese banks stems from worries that their heavy reliance on net interest income may hurt profitability as regulators push harder for interest rate liberalization and funding channel diversification.

"Banks are set to play a smaller role in the long term as the country diversifies away from its reliance on bank loans," said Khiem Do, Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management Ltd, in an earlier interview.

Heads of the "Big Five" banks reached a consensus at a meeting earlier this year that the banking sector's high growth will be unsustainable as net interest margins shrink due to fiercer competition, Caixin Online said in a report in January.

A property market rebound in the first quarter helped the banking sector. The central bank said this week that Chinese financial institutions extended a total of 710.3 billion yuan in mortgage loans in the first quarter, more than double the figure in the previous quarter.

Zhang Dawei, research director at real estate brokerage company Centaline Group, said that regulatory loosening last year resulted in a jump in mortgage loans in the first quarter.

"This was especially the case in March, when homebuyers rushed to make deals in the face of looming tightening measures," said Zhang.