China Banks Face Tough Times

From Reuters:

China’s huge state banks are poised to report strong profit growth for the first half in 2008, thanks to wider margins and strong fee income, but funding costs are expected to rise in the second half, eroding growth.

Chinese lenders are likely to face a harder time for the rest of the year and beyond as customers lock up funds in time deposits and move away from more profitable demand deposits, and as a weak stock market dents enthusiasm for investing in shares.

Asset quality is expected to deteriorate as property firms are hit by Beijing’s clampdown on borrowing and exporters are squeezed by a weakening U.S. economy and higher costs. Banks will also be without the incremental benefit of a lower tax rate that kicked-in last year.

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