CHINA’S biggest banks, already poised for the weakest profit growth in more than a decade, risk a further erosion in earnings from record share sales intended to boost their capital after a credit binge.

    Industrial & Commercial Bank of China Ltd. (ICBC), the nation’s largest lender, and its listed peers this year proposed selling US$63 billion in preferred and common stock, exceeding U.S. and European banks’ combined US$56 billion. The five biggest Chinese banks report second-quarter earnings beginning today.

    Selling preferred stock will saddle the banks with expensive dividend payments, an extra drag on retained profits. Shares of China’s lenders, trading at the cheapest price-to-earnings valuations among global banks, are already constrained by rising bad loans, a faltering economy and prospects of more equity sales.

    “It’s a vicious cycle,” said Chen Xingyu, a Shanghai-based analyst at Phillip Securities Research. “Unlike the biggest banks in the United States and Europe, Chinese banks are still run on a very primitive and capital-intensive business model of taking deposits and offering loans: that means they are always in need of capital replenishment.”

    China’s five biggest banks — ICBC, Bank of China, Agricultural Bank of China, China Construction Bank and Bank of Communications (BoCom) — may report a 7 percent rise in combined net income to 924 billion yuan (US$150 billion) this year, according to analysts’ estimates.

    Second-quarter profit growth for China’s big five banks may range from a high of 12 percent for Agricultural Bank to a low of 5 percent for BoCom, according to a survey. (SD-Agencies)