By Godwin Chellam and Edwin Chan
SHANGHAI, July 29 (Reuters) - China's listed banks are likely to post a jump in second-quarter results on booming consumer and property loans, but government efforts to tighten lending could squeeze loan growth in the second half.
Healthy economic growth of more than seven percent is fuelling a consumer boom, with people loading up on cars and houses and factories borrowing to expand.
But China's central bank is likely to use an arsenal of measures to put the brakes on loan growth as it frets about inflation, and analysts warn that some lenders will have trouble repaying loans.
"The banking sector is going like a rocket, but there are concerns about non-performing loans," said Anthony Lok of Bank of China International, who is overweight on the sector.
Listed commercial lenders have bad loan ratios in the single-digits, much better than their larger, state-run cousins.
Officials say one in four state-bank loans are non-performing, but foreign analysts reckon as many as half the loans at state banks are bad.
Analysts say China's listed banks -- including Pudong Development Bank and Shenzhen Development Bank -- should post an average on-year jump of 30 percent in second-quarter earnings. Banks have until the end of August to report results for the first half.
But Xu Jie at Capital International says second-quarter earnings of the largest, China Merchants , are forecast to fall six percent on year to 544.13 million yuan ($65.74 million) after a particularly strong first quarter -- when profits soared 65 percent year on year.
LENDING CURBS
Analysts warn the outlook is murky, as the central People's Bank of China -- which has told commercial banks to curb loans for luxury homes -- could tighten credit further.
Yuan-denominated loans swelled by 1.78 trillion yuan in the first half, state media said, sparking worries that sizzling credit growth could fuel inflation and create more bad loans.
"The central bank will tighten loans a notch or two in the second half, now that we're starting to see signs of overheating," Xu said.
Analysts say worries that some ballooning loans might turn sour are very real, especially when the sector harbours more than five trillion yuan, or about half of total loans, in bad debt.
Banks are pondering fee-based income sources such as credit cards. Visa International reckons only six percent of China's top earners own international debit or travel cards.
"It's one of the last great frontiers of the world, so everyone still wants to be part of the China frenzy," Lok said.
HOT MARKET
Global players like HSBC and Citigroup are straining to chase $1.2 trillion in personal savings.
Consumer credit like auto financing and home mortgages, virtually non-existent several years ago, constituted more than a fifth of new loans in 2002, Standard & Poor's said.
"It normally takes several years for new loans to season," said Ryan Tsang, a director of financial services ratings at Standard & Poor's Ratings Services.
Some are investing in booming sectors like cars and telecoms, hoping to dilute sky-high bad debts caused by lending to unprofitable state firms, while others focus on consumers, which they see as less risky than small companies.
Banks are likely to be more conservative in the second half to avoid over-rapid expansion, and smaller lenders are considered more adept at managing risks.
Financial firms' outstanding loans rose 23 percent in the year to June to 15.9 trillion yuan, central bank data shows. But few listed banks are heavyweights in the property loans sector.
"None of the four listed banks is a major housing mortgage lender," said analyst Qin Yuexing at China Southern Securities.
For 2003, China Merchants should see earnings growth taper off to 15 to 20 percent while Shenzhen bank's could dip 74 percent due to a mediocre loan portfolio, analysts said.
But the smaller, privately owned China Minsheng Banking Corp will do better, with net profits seen jumping 44 percent, they added. Minsheng recently reported first-half profits rose 48 percent on the year. ($1=8.277 Yuan)