BoCom sees strong 2010 China lending, bank profits

A worker polishes the Bank of Communications logo at its central branch in the financial district of Hong Kong August 19, 2009. Banks in China are expected to lend 8-9 trillion yuan in 2010, slowing a touch from this year's likely new-loan total of 10 trillion yuan, Bank of Communications (BoCom) said on Saturday..

BEIJING (Reuters) - Banks in China are expected to lend 8-9 trillion yuan in 2010, slowing a touch from this year's likely new-loan total of 10 trillion yuan, Bank of Communications (BoCom) said on Saturday.

Robust loan growth will help boost the banking industry's profits by 20 percent next year, up from 5-10 percent growth expected in 2009, BoCom, China's fifth-largest lender, said in its annual report on the country's banking sector.

"The scale of new loans in 2010 will remain significant. It will be the second largest in history next to 2009," the report said.

A likely widening in the spread between deposit and lending rates in 2010 will also boost banks' bottom lines, BoCom said.

As for asset quality, BoCom said system-wide non-performing loans (NPLs) would remain steady; the NPL ratio might even fall because of the growth in outstanding loans.

An improving economy, low risks associated with home mortgages and increased provisions against possible losses would also help to spruce up banks' books, it added.

BoCom said the central bank might raise interest rates and required reserves in 2010, but any changes would be modest.

"If major Western economies embark on exit strategies earlier than expected, and if China's economy, bank credit and inflation grow too fast, China might raise interest rates slightly -- one or two increases of 0.27 percentage point each time," the report said.

The increase in required reserves, now 15.5 percent for the top five banks, will be no more than 1 percentage point, BoCom added.

(Reporting by Zhou Xin and Alan Wheatley; Editing by Sanjeev Miglani)