Chinese Banks

Banks everywhere are struggling to stay alive. Banks everywhere? No, there's a mystical faraway country where things are different: Chinese banks are still posting record profits.

ICBC's Q1 results were out today, and profits are up 6 % yoy. Quarterly profits of 35 bn RMB = 4 bn €. If they can keep that sort of performance up for the rest of the year, they'll be posting more than 15 bn € of 2009 net profits.

Two things struck me as noteworthy:

- Everyone keeps talking about the massive increase in lending by Chinese banks. But ICBC's balance-sheet shows that bank deposits have risen even more. In other words, it's not just borrowers wanting more money. It's also depositors saving more.

- Fascinatingly, loan loss provisioning is down sharply from last year. Their net reserving in the quarter was just 400 m €, less than 0.1 % of their loan book. It's obviously in accordance with HK-GAAP. But can it really be appropriate? Is it conceivable that there are hardly any default risks that should be provided for?

In any case, the numbers as stated are very, very good. Let's see if they stay that way over the next few quarters...