-- China's five largest banks report combined first-quarter net profit of CNY208.94 billion
-- Interest and fee income growth decelerated in the first quarter
-- Analysts expect the banks to report net profit growth of 14% on average in 2012, down from 26% growth in 2011
(Combines earlier stories, adds a bank executive's comment in the 7th paragraph, adds analysts comments in the 8th, 9th and last paragraphs)
China's five largest banks continued to crank out bumper profit in the first quarter, but the key engines for their earnings growth, interest and fee income, started to run out of steam after supercharged expansion in recent years.
Friday, Industrial & Commercial Bank of China Ltd. (1398.HK), the largest bank by assets on the mainland, said its January-March net profit grew 14% to CNY61.34 billion ($9.77 billion). Net profit in China Construction Bank Corp. (0939.HK), Agricultural Bank of China Ltd. (1288.HK) and Bank of Communications Co. (3328.HK) rose by 9.2%, 28% and 20% to CNY51.51 billion, CNY43.45 billion and CNY15.88 billion respectively.
On Thursday, Bank of China reported a 10% gain in first-quarter net profit to CNY36.76 billion.
The results are strong compared to most of their Western peers that are still struggling with the anemic economic recovery in their respective markets. But their earnings reports offered some signs of uncertainty for China's banking sector as the world's second-largest economy continues to cool.
Highly dependent on making loans to fuel investment, banks' figures suggest they are taking a hit as businessmen grow cautious amid an economic slowdown.
While ICBC's net interest income earned on lending rose 16% to CNY98.82 billion, the rate slowed from a 25% rise in the year-earlier period. Bank of Communications' net interest margin, a key gauge of the profitability of banks' lending business, increased slightly to 2.60% in the first quarter from 2.59% in the fourth quarter of last year.
Given the current economic situation, "it's impossible to see a big increase in the bank's interest margin this year," said Yu Yali, chief finance officer at Bank of Communications.
"Net interest margins are likely to decline slightly across the board. We believe this reflects banks' ability to price loans has peaked or come under pressure amid weakening demand and continuing competition for deposits," Citigroup said in a recent note.
Analysts forecast China's five largest banks will report net profit growth of 14% on average in 2012, down from 26% growth in 2011.
Adding to the lackluster outlook is a sharp slowdown in banks' fee income growth. In recent years, Chinese banks have been gearing up to diversify their revenue streams into fee-based business segments, such as credit card and advisory services.
But higher consumer fees have fueled discontent against Chinese banks that have already come under criticism for enjoying a state-mandated fat interest margin and a lack of lending to small businesses.
In February, China's central bank, the state planning agency and the banking regulator barred bank subsidiaries from setting their own charges, stipulating that all service fees must be decided at the head office.
The move seems to have had some impact. ICBC's net fee and commission income grew merely 10% to CNY28.62 billion in the first quarter, down from the 42% increase in the year-earlier period. Such income posted by Bank of Communications Co. rose 22%, compared to 43% growth in the same period of last year.
"We're going to see a slowdown in the growth of Chinese banks' intermediary business segments this year due to a combination of relatively higher base numbers last year and stricter regulatory enforcement," said GF Securities analyst Mu Hua.
-Rose Yu and Yue Li contributed to this article, Dow Jones Newswires; 8621 6120-1200; firstname.lastname@example.org