China's largest State-owned commercial bank yesterday reported a hefty rise in its operating profit for 2003, further strengthening its financial shape as it moves closer to a planned public stock offering.

The Industrial and Commercial Bank of China's (ICBC) profit for last year came in at 62.1 billion yuan (US$7.5 billion), a jump of 40 per cent from the previous year, it said.

A total of 60 billion yuan (US$7.2 billion) out of that profit was set aside as bad loan provisions or for write-offs.

Larger profits, which can boost a bank's capital base, are greatly needed by the bank, which is widely believed to be the next to win a State-sponsored capital infusion after the Bank of China and China Construction Bank each got a US$22.5 billion injection at the end of last year.

The two banks were recently chosen for pilot joint-stock restructuring under a government-orchestrated reform scheme for the nation's four largest State-owned commercial banks, which also include the Agricultural Bank of China.

The pilot banks and ICBC are believed to be targetting initial public offerings no later than 2006.

Insiders said ICBC had lost out to its two smaller peers in the race to win the pilot bank status when it failed to meet a criterion requiring total capital to be greater than losses.

The bank also announced a 1.24 per cent return on assets (ROA) and a 38.3 per cent return on equity (ROE) for last year, which are both the best in the bank's 20 year history.

The bank managed to reduce its outstanding non-performing loans by 43.3 billion yuan (US$5.2 billion) last year, a fall of 4.3 percentage points from the end of 2002.

The ratio of non-performing loans, by the internationally-accepted five-category classification, stood at 21.3 per cent at the end of last year, it said.

Deposits increased by 509.8 billion yuan (US$61 billion) while outstanding loans rose by 391.1 billion yuan (US$47 billion), or 13 per cent, from the end of 2002.

The bank attributed the improvement in profitability and asset quality to a "sound macroeconomic situation," effective supervision by regulators and its campaign to readjust its business structure.

An ICBC spokesperson underlined an improvement in the bank's income structure. Out of its 108.1 billion yuan (US$13 billion) of net income last year, intermediary business and investment return accounted for 33 per cent.

The income from intermediary business was 7.9 billion yuan (US$951 million), which accounted for 10.8 per cent of interest income, the spokesperson said, without giving figures for previous years.

"We are seeing some initial improvement in the conventional income structure that is based on interest income," the spokesperson said.

Chinese banks' high reliance on interest income is seen as a drawback to their profitability as compared to their international competitors.

The bank also gained further ground in the bank card business last year, according to Peng Jianyin, executive vice-president of the ICBC's Card Centre.

The bank's total card issuance jumped by 21 per cent last year to 95.9 million, around one fourth of the nation's total, while transactions soared by 48 per cent on a year-on-year basis to 97.3 billion yuan (US$11.7 billion) This accounted for 40 per cent of all card-facilitated consumption.

Peng said the bank's credit card overdrafts jumped by 103 per cent from the end of last year, which brought nearly 400 million yuan (US$48 million) in interest income.

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