Bank of China reported a 29 per cent increase in net profit to a record Rmb27.2bn ($4.1bn) in the third quarter from the same period a year earlier, while Agricultural Bank of China's net profit rose 29.5 per cent from a year earlier to Rmb24.3bn.
The banks are the first of China's state-controlled lenders to report profits for what is expected to have been a bumper quarter for most of their competitors as well.
However, the banks face problems involving bad loans resulting from a government-directed lending binge launched to combat the financial crisis.
Analysts, regulators and even the banks warn that the big expansion in lending, with the volume of new loans doubling from a year earlier to Rmb9,600bn in 2009, will almost certainly lead to a large rise in non-performing loans as many borrowers eventually default.
With credit still relatively easy to obtain and with economic growth still above 9 per cent, many of those asset problems are yet to materialise.
Bank of China said that its ratio of non-performing loans to total loans was 1.10 per cent at the end of September, down 0.42 percentage points since the end of 2009.
Agricultural Bank of China's bad loan ratio, which was above 20 per cent before a government bail-out less than two years ago, has fallen to 2.1 per cent.
The surprise interest rate rise last week will provide banks with large lending margins, which are the main source of revenue for Chinese banks.
Li Shaojun, an independent banking analyst in Beijing, said: "Chinese banks have relied on massive asset expansion in the last few years to achieve rapid growth, but this is a very traditional and primitive method, and will negatively affect their future development
Read More:http://edition.cnn.com/2010/BUSINESS/10/27/China.bank.profits.ft/index.html
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