JASON LEOW
SHANGHAI -- Industrial & Commercial Bank of China Ltd., the world's largest lender by market value, reported a 6.2% rise in first-quarter net profit, as higher fee-based income and gains in foreign-exchange holdings helped offset a drop in net interest income.
The fall in net interest income, a key source of profit for China's banks, reflects the challenges the banks face as the domestic economy slows. China's central bank cut the benchmark one-year lending interest rate by 2.16 percentage points in the second half of last year, to help boost the cooling economy.
With recent signs of a recovery in China's economy, analysts expect banks' growth to improve in the coming quarters. "From the perspective of profit growth rate, the first quarter may have been the low point in this cycle for China's banks," said Wang Qian, an analyst at Industrial Securities Co., of Shanghai.
![[ICBC net profit chart]](http://s.wsj.net/public/resources/images/AM-AF787_ICBC_NS_20090427142417.gif)
"Concerns that foreign investors will likely sell part of their stakes in the bank have been hanging over ICBC. On Tuesday, Allianz SE and American Express Co. said they sold half of their stakes in ICBC in a private placement as the lockup period on them had expired. The lockup on the other half of their holdings expires on October 20.
Allianz now owns a 0.97% stake in ICBC and American Express 0.2%. Goldman Sachs Group Inc., another foreign investor, holds 4.93% in ICBC and has pledged a new lockup commitment covering 80% of those shares. It will be free to sell 20% of its stake after Tuesday."
For the first period, ICBC said its net rose to 35.15 billion yuan ($5.15 billion) from 33.11 billion yuan a year earlier. The latest profit was better than the average forecast of 33.70 billion yuan of four analysts surveyed by Dow Jones Newswires.
ICBC's net interest income fell 13% to 57.75 billion yuan, though loans rose 14%, or 636.4 billion yuan, from the end of last year, exceeding its full-year target of 530 billion yuan.
Income on foreign-exchange assets was a big driver of ICBC's rise in profit in the first quarter, said Lee Yuk-kei, an analyst at Core Pacific-Yamaichi International, in Hong Kong. ICBC reported 831 million yuan in net income on foreign-exchange assets in the first quarter, against a 3.36 billion yuan net loss a year earlier.
In addition, ICBC's fee-based income rose 9.7% in the first quarter to 13.55 billion yuan because of a 30% surge in China's stock market in the period.
Analysts say that how ICBC and the nation's other banks perform for the full year will depend in part on whether Beijing intends to keep up the lending momentum. Beijing has encouraged big banks like ICBC to lend funds to jump-start the economy.
New yuan loans surged to 4.58 trillion yuan in the first quarter, equivalent to more than 90% of the central government's minimum target for the full year.Though analysts expect lending growth to slow over the rest of the year, they said China's banks will likely extend seven trillion yuan of new loans this year, up 22% from the end of last year.
—Rose YuWrite to Jason Leow at jason.leow@wsj.com
