China Minsheng Banking Corp Ltd's booth at a finance exhibition in Beijing. Industry analysts expect net income for Chinese banks to increase 30 percent on average in the first quarter and to maintain that pace in the second quarter, with small and city commercial banks outperforming their larger counterparts.[Photo / China Daily]

China Minsheng is latest lender to report good results in first quarter

SHANGHAI - Higher interest margins are helping Chinese banks to report strong results in the first quarter.

China Minsheng Banking Corp Ltd is the latest to benefit, reporting on Thursday that first-quarter net income jumped by nearly 50 percent.

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In a statement to the Shanghai Stock Exchange, the bank said net income rose 45.5 percent to 6.21 billion yuan ($952 million), or 0.23 yuan a share. Revenue was 17.16 billion yuan, an increase of 38.6 percent year-on-year.

The increase came despite a series of monetary tightening measures by the government to trim lending and thus curb inflation, which reached a 32-month high of 5.4 percent in March.

Other listed banks have already reported strong performances in the first quarter.

Bank of Ningbo Co Ltd, a city commercial bank in Ningbo, Zhejiang province, saw first-quarter net income surge 63.6 percent to 815 million yuan, and Shenzhen-listed Shenzhen Development Bank Co Ltd said net income jumped 52 percent to 2.40 billion yuan.

Meanwhile, Agricultural Bank of China Ltd, one of the country's "Big Five" banks, posted a 36.4 percent increase in net income to 34.1 billion yuan.

All three banks cited increased interest income, triggered by a wider interest margin - the difference between the income generated by lending and the amount paid out as interest to savers - as a contributor to their strong results.

"The government-imposed restrictions on lending have resulted in a situation where enterprises are scrambling for lines of credit. That in turn has pushed up lending rates and widened the banks' spread deposit and loan rates," said Wang Mingfei, a banking industry analyst with Shanghai-based Oriental Securities.

Meanwhile, the increase in the benchmark interest rate has also helped to stretch interest margins, Wang added. The People's Bank of China, the central bank, has raised the cost of borrowing twice so far this year, and four times since October 2010.

Chen Jiangang, a banking industry analyst with Sinolink Securities, told the Shanghai-based Daily News that the interest margin for Chinese banks increased to 2.6 percent in the first quarter while the amount of interest-earning assets rose by an average of 16 percent.

Wang expects net income for banks to increase 30 percent on average in the first quarter and to maintain that pace in the second quarter, with small and city commercial banks outperforming their larger counterparts.

He added that banking shares gained by an average of 10 percent in the first quarter. "We are bullish about bank shares, which are set to outperform the overall market again in the second quarter," he said.

For Minsheng, the strong first quarter numbers indicate that the bank may record good full-year results.

Yuan Xiaoyu, an analyst with Hong Kong-based Masterlink Securities Investment Advisory Co Ltd, wrote in a report last month that Minsheng's net interest margin will increase by between 18 and 20 basis points this year from 2.94 percent at the end of 2010, outstripping the industry average.

That will help realize a 16 percent increase in loan balance by the end of the year and 36.2 percent increase in net income to 22.5 billion yuan, wrote Yuan, who rates Minsheng's shares a "buy" in both Shanghai and Hong Kong.