Profits of mid-sized banks drop as state-owned giants dominate

China's 12 joint-stock commercial banks, traditionally held as second stringers in the country's banking industry, posted an average 20 per cent annual decline in net profit in the first half of the year, reflecting the predominance of state-owned big lenders in the latest round of credit boom as a result of loose monetary policy.

The net profit of the dozen mid-sized domestic lenders, led by Hong Kong-listed Citic Bank and China Merchants Bank, totalled 45.2 billion yuan (HK$51.26 billion) in the first six months, down 19.3 per cent from the same period last year, Xiao Yuanqi, a director at the China Banking Regulatory Commission, was quoted as saying by Xinhua.

Mr Xiao blamed narrowing interest margins as the main reason while industry analysts were quick to point out the structural imbalance in the credit market this year that put joint-stock banks at a disadvantage.

'Most borrowers in the market this year are government-backed mega-sized infrastructure projects, which worked overwhelmingly in favour of the five leading state banks (with significantly bigger deposit base and better government connections),' said Qi Yifeng, an analyst with research firm CBM Monitor.

According to CBM data, short-term bill financing, usually of lower profit margin than regular loan-making business, makes up a disproportionate share of the portfolio at joint-stock banks.

'That put a dent in their bottom lines,' Mr Qi said.

Industrial and Commercial Bank of China, Bank of Communications, China Construction Bank Corp, Agricultural Bank of China and Bank of China are traditionally ranked as frontrunners in the banking sector with mammoth networks and strong customer loyalty, thanks to the legacy from the era of a fully state-controlled economy.