March 26,2009

ICBC at the Top and Sitting Pretty

By CSC staff, Shanghai
The Industrial and Commercial Bank of China (ICBC) has seen another golden harvest, even during the global financial drought. In 2008 its performance consolidated the bank’s status as the world’s largest by market value and it also became the world’s most profitable.
 
Today ICBC revealed its 2008 accounts based on International Financial Reporting Standards. In 2008, its profit after tax totaled 111.2 billion yuan (about $16.35 billion), up 35.2% year on year, and its EPS hit 0.33 yuan. This is the bank’s sixth straight year of high growth, starting from 2003. In those years, the compound growth rate of ICBC’s after-tax profit has been 37.5%.
 
Despite the interest cuts of global central banks last year, ICBC’s net interest difference rose slightly, standing at 2.80%, while its net interest yield was 2.95%, growing 13 and 15 basis points, respectively, year on year. ICBC says it was because the growth of average rate of return of its assets was slightly higher than that of the average interest rate of its liabilities.
 
By the end of 2008, ICBC’s capital adequacy ratio and key capital adequacy ratio reached 13.06% and 10.75%, both slightly lower than last year’s but within requirements of supervisors.
 
Provision coverage exceeds 130%
 
At the end of 2008, ICBC’s non-performing loans (NPL) totaled 104.482 billion yuan, 7.3 billion yuan lower than at the end of 2007. Its NPL ratio dropped by 0.45 percentage points to 2.29%, making 2008 the ninth straight year to see a decrease in both NPL and NPL ratio.
 
ICBC’s provision coverage reached 130.15% at the end of 2008, a growth of 26.65 percentage points, year on year. This is also the highest provision coverage among state-owned banks that have so far released annual reports.
 
ICBC’s new lending in 2008 totaled 536.8 billion yuan, tops among all domestic banks, up 190.1 billion yuan, or 14.3%, year on year. ICBC said the bank expanded its credit scale in the third quarter on the government’s instructions, and further accelerated credit expansion in the fourth quarter.
 
By the end of 2008, ICBC’s provision for impairment of assets totaled 55.462 billion yuan, a rise of 48.3%, year on year. Among that total, provision for NPL rose 10.44% to 36.512 billion yuan, due mainly to the influence of lending growth and the macroeconomic situation, and provision for other losses totaled 18.950 billion yuan, up 440%, or 14.605 billion yuan, over last year, due primarily to increase in provision for losses from the US sub-prime mortgage loans and bonds issued by Lehman Brothers. ICBC said it had allocated about $1.791 billion according to the market value of these assets, provision coverage reaching 101.88%.
 
ICBC’s Freddie Mac and Fannie Mae-related bonds totaled $1.642 billion, accounting for about 0.12% of total assets. ICBC has allocated $126 million as provision for these bonds, the provision coverage totaling 102.44%.
 
ICBC emphasized its strategic cooperation with Goldman Sachs, American Express and Allianz in a joint statement. The three strategic investors all declared they would continue their cooperation with ICBC and deal well with their shares, which have recently become tradable. Even if they decide to sell their ICBC shares, they will formulate feasible schemes that will increase their value and reduce possible negative influence, and will prefer to sell them to investors privately. "These shares will not appear on the secondary market."
 
Goldman Sachs even made a written promise that 80% of its shares in ICBC will not be sold before April 28, 2010. As for the other 20%, Goldman Sachs said it was not anxious to sell them at all.
 
According to Goldman Sachs Vice Chairman Michael Evans, the company enjoys adequate capital funding and liquidity, and has no plans to repay its $10 billion US government TARP loan through the sales of its ICBC shares.

 

 

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