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Daily Dispatches – China’s banking giants defying gravity

Striding ahead on earnings

Striding ahead on earnings

The world’s largest bank, Industrial & Commercial Bank of China, spearheaded the country’s four largest lenders in reporting faster-than-estimated second-quarter profit growth by containing bad loans and selling more wealth management products, according to a report by Bloomberg. The latest financial results come even as China’s economy slows, and earnings at smaller banks decline.

The four banks, among the world’s nine biggest by market value, reported record combined net income of 216 billion yuan ($35.2 billion), 15% higher than last year.

“It’s comforting to see that the big four banks managed to maintain liquidity and earnings ability in the current operating environment,” Chen Xingyu, a Shanghai-based analyst at Phillip Securities Research, told Bloomberg. “While the banking industry’s profit keeps rising, the growth rate is slowing. The biggest risk going forward is still the worsening asset quality.”

Meanwhile the Financial Times reports that China Construction Bank, Bank of Communications, Citic Bank, China Minsheng and Ping An Bank all took more losses on non-performing loans than in previous years.

Bank of China, which reported its half-year results on Thursday, said it had “expanded the channels” for bad loan disposals, but gave no further details.

These write-offs and the moves by some to dispose of bad loans in the markets help to explain why the overall level of non-performing loans being carried by the industry have remained lower than many investors or analysts expected, the FT said.

Philippines rising

Philippine gross domestic product grew 7.5% in the second quarter from a year ago after expanding by a revised 7.7$ from the previous three months, making it the fourth straight quarter that the economy climbed more than 7%, according to a Financial Times report.

The economic growth figure exceeded analysts’ median forecast of 7.2% growth for the quarter ending June. Construction and investments in durable equipment, as well as government spending, countered the effects of a global and regional slowdown

Foreign investment banks turn bullish on China’s economy

Many international investment banks, such as Barclays Bank, DeutscheBank and Credit Suisse have raised their forecasts for Chinese economy growth, according to People’s Daily Online.

Deutsche Bank on Thursday raised China’s economic growth forecast from 7.6% to 7.7% in the second half of2013, while Credit Suisse said China’s economy has bottomed and raised China’s economic growth forecast for 2013 to 7.6% from the previous forecast of 7.4%.

Deutsche Bank economist Ma Jun was quoted by People’s Daily Online saying the rising expectation is based on China’s economic changes since July, including demand boosted by rising commodity prices and a rebound in the manufacturing sector.

Yip on board at UBS to build Asian ETF business

Asian Investor says that UBS Global Asset Management has hired ETF specialist Sammy Yip for a new role that will oversee the expansion of the company’s exchange traded funds business in Asia.

UBS currently does not have any ETFs listed in Hong Kong or Singapore, but it does have around US$13.3 billion in ETF assets listed globally.

Woori wooed by investment banks

South Korea’s planned privatisation of its Woori Finance Holdings, which includes regional banks and a securities arm, is attracting investment banks keen to sell advisory services, according to a report in Finance Asia.

JPMorgan and Samsung Securities, which represented the government in the three previous attempts to sell Woori, are on board again. Goldman Sachs and Credit Suisse are advising bidders for some of Woori’s assets.

Tackling banking fraud by polygraph

Michael Eggleton, CEO of Eurasian Bank in Kazakhstan, introduced lie-detectors after he took over in 2009 to counter losses stemming from embezzlement.

A report by Bloomberg Businessweek details the former Merrill Lynch and Credit Suisse banker’s success with his unusual move of putting all staff through regular polygraph testing.

Graft is pervasive in Kazakh banking, with one in every seven borrowers claiming to have to pay a bribe to secure a loan, according to a poll conducted last year by Sange Research Center in Almaty.

The use of a polygraph has led to a drop in theft, including kickbacks for lending.  Although the annual test is voluntary, employees who refuse to take it don’t get bonuses or promotions. More than 600 people left Eurasian Bank the first year the lie detector was in use, reducing the number of employees to 2,010.

The bank is highlighting its crime-busting tool in marketing materials for a planned US$300 million Eurobond sale this year.

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