China big banks receives higher-than-expected profits

ICBC surpasses first-quarter profit performance of JP Morgan, most profitable bank in the US, by 49%.

Industrial & Commercial Bank of China Ltd. led rivals including Bank of China Ltd. in posting better-than-expected profit growth in the first quarter as lending margins expanded and fee income surged.

Net income at ICBC, the world’s most profitable lender, climbed 29 percent from a year earlier to 53.8 billion yuan ($8.3 billion). Bank of China, the nation’s third largest, reported a 28 percent increase while Bank of Communications Co., the fifth largest, said earnings rose 27 percent. The results exceeded analysts’ estimates by an average 5.4 percent.

Chinese banks are countering a slowdown in credit growth by charging more for corporate and home loans after the central bank raised interest rates four times since October and reduced the money available for lending to curb inflation. The banks are likely to post 20 percent growth in profits in 2011 and 2012, according to Goldman Sachs Group Inc.

“Another strong quarter has reaffirmed our view that earlier concerns about the banks’ asset quality deterioration are too pessimistic,” said Tang Yayun, a Shanghai-based analyst Northeast Securities Co. “Banking shares may rally by an average 10-15 percent even after the recent increase.”

Shares of the eight largest Hong Kong-traded Chinese banks have outperformed the benchmark Hang Seng Index this year. ICBC advanced 13.6 percent, after dropping 8.4 percent in 2010 as investors became concerned that asset quality and the bank’s capital strength may deteriorate.

ICBC’s first-quarter profit is 49 percent more than that of JPMorgan Chase & Co., the most profitable U.S. bank. The New York-based lender said earnings in the period climbed to a record after it reduced reserves set aside to cover bad loans, even as net revenue dropped 8.9 percent. At Bank of America Corp., the largest U.S. bank by assets, profit fell 36 percent.

View the full story in Business Week.