Chinese bank lending tumbled last month. New loans by the big four banks totaled CNY101.7 billion as of April 25, and total bank loans increased only by CNY700 billion. This compared with CNY1.01 trillion in new loans by all Chinese banks in March, the highest since January 2011. Analysts said lending for the whole of April could fall as much as 30% from March. A spike in March lending was a one-off, with new lending mostly coming from the household sector in the form of short-term financing, and not for investment, said Joy Yang, Chief China Economist at Mirae Asset Securities. Investment sentiment in China was weak in the first quarter despite the March rise, which failed to lift industrial investment, said Tao Dong, Economist at Crédit Suisse. Analysts said the slowing loan growth in recent months mainly stemmed from the fact that large state-owned enterprises suffered from weak demand, and small and medium-sized enterprises (SMEs), which needed money, could not access bank loans. Some analysts said more ambitious policy easing would start around mid-year to support growth. “This is because 2012 is the political transition year, and growth is the priority target,” said Yang of Mirae Asset Securities. Chinese banks lent about CNY2.5 trillion in the first quarter, slightly beating market estimations of CNY2.4 trillion and above the CNY2.2 trillion seen in the same period last year.

Chinese banks last year posted their highest profits in at least four years, despite a slight rise in bad loans for some in the fourth quarter amid a slowing economy. About 3,800 institutions in China, including policy banks, commercial, city and rural commercial lenders, earned about CNY1.25 trillion last year – up 39% year on year – according to the China Banking Regulatory Commission’s annual report. Banks have come under fire recently for racking up fat profits while continuing to pay depositors meagre interest rates that do not even keep up with inflation. Banks’ fee income contribution to overall income rose 2 percentage points to 14% last year. Net interest income contribution continued to increase, by 20 basis points, to 66.2%, due to a fall in treasury and other income. Bad loans, which came under scrutiny following a lending spree in the aftermath of the global financial crisis, continued to drop in both volume and ratio even though they rose slightly for some banks in the final quarter last year. Overall, non-performing loans (NPL) in China’s banking system fell to CNY1.05 trillion at the end of last year. The non-performing loan ratio fell 0.66 percentage points to 1.77%. Even though the banks’ total loan loss reserve, which is money set aside for potential bad loans, reached CNY1.19 trillion and the loan loss coverage ratio rose 60.4 percentage points to 278.1%, some analysts remain skeptical over whether banks are setting aside enough money for loans that may turn sour.

China Development Bank (CDB), the financing arm for big infrastructure projects, posted a 22.9% rise in net profit last year to CNY45.6 billion. The bank’s net profit figure makes CDB the sixth most profitable bank in China, behind the five biggest banks deemed “systemically important” by regulators, with earnings boosted by an increase in its financing margin. CDB said its non-performing loan ratio dropped to 0.4% at the end of 2011 from 0.68% from a year ago. CDB, which has a sovereign status in the onshore bond market, had a net interest rate gap of 204 basis points in 2011, up from 185 basis points in 2010, as it raised low-cost funds from the interbank system and lent heavily to government-backed projects such as roads and railways. CDB is the second-largest bond issuer in China’s interbank market, next only to the treasury, accounting for 20.8% of total bonds issued last year. CDB, with CNY6.25 trillion in assets, is regarded as a policy bank that subordinates profitability to serving government interests, despite plans to make it a commercial bank. The bank is owned by the Ministry of Finance with 50.18%, Central Huijin Investment at 47.63%, and the national pension fund with 2.19%.

A center that will monitor and act as a clearinghouse for private lending opened in Wenzhou, Zhejiang province, under a 12-point pilot plan to reform the city’s financial industry. The center is intended to bring Wenzhou’s huge, unquantified “shadow banking” system under control. It has CNY6 million in registered capital and 22 investors. The center will disseminate private lending related information, register private loans, provide credit ratings, and rent office space to private lenders. The center aims to make private lending traceable and prevent a build-up of risks, said Zhou Dewen, Chairman of the Wenzhou Small and Medium-sized Enterprises Development Association. There is no authoritative figure for the scale of private lending in Wenzhou because everything’s done underground, Zhou said. Last year some entrepreneurs fled after being unable or unwilling to repay debt bearing usurious rates of up to 90%. Many entrepreneurs in Wenzhou turned to private lending last year when state-owned banks cut loans to small and medium-sized enterprises amid credit-tightening measures by the central bank. The founding of the center was one of the 12 measures promised in a central government decision earlier this year to make Wenzhou a “pilot zone” for a series of financial reforms. The reforms also include allowing residents of the coastal city to invest privately overseas and set up loan companies. Wenzhou will also set up a finance supervision bureau and crack down on irregularities in the financial industry. The plan calls for Wenzhou to have at least 30 rural financial institutions and 100 microcredit companies with CNY40 billion in net assets by the end of 2013, the China Daily reports.

Bank of China’s profit growth decelerated to 10% in the first quarter to CNY36.8 billion. The bank advanced CNY247 billion of new loans in the first quarter, 17% less than a year earlier. Profit growth declined from 10.8% in the previous quarter and 28% a year earlier. Net interest income rose 13.2% to CNY60.6 billion during the quarter, while the loan margin stayed unchanged at 2.11%. Net fee and commission income, from businesses such as trade finance and custodial services, gained 13.8% to CNY21.2 billion. Bank of China’s non-performing loans, or those overdue for at least three months, rose by CNY665 million to CNY63.9 billion at the end of March, and amounted to 0.97% of total loans. The bank’s capital-adequacy ratio (CAR) narrowed in the quarter to 12.8% as of March 31, from 12.97% at the beginning of the year. The core-capital-adequacy ratio stood at 9.97%. BOC was the only lender from China to be included on a provisional list of 29 systemically important financial institutions published in November by the Financial Stability Board, a body set up by the G20 group of nations.