China's bank profits hit record, but bad loans up

SHANGHAI -(MarketWatch)- Three of China's largest banks have reported record levels of net profit for 2011, but rising levels of bad debt have renewed concerns about credit risks in the country's banking sector.

China's largest bank by assets, Industrial & Commercial Bank of China Ltd. , said Thursday its net profit rose 26% to CNY208.27 billion (US$33 billion) last year because of wider interest margins. However, in the fourth quarter its bad loans rose by CNY3.82 billion, a mild increase considering the bank's mammoth size but one that adds to the uncertainty about the long-term health of Chinese lenders.

Separately, Bank of China Ltd. Thursday posted a 19% rise in full-year net profit to CNY124.18 billion, although the value of its bad loans rose by CNY1.39 billion in the last quarter of the year.

Earlier this week, China Construction Bank Corp., the country's biggest lender to home buyers, posted an increase of CNY6.27 billion in bad loans for the fourth quarter.

While analysts don't expect a banking crisis in China to compare with the one that hit U.S. and European banks in recent years, the country's cooling economy, falling home prices and the challenge of refinancing sizable local government debt will increase bad loans and erode banks' profitability, they say.