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Three listed mainland banks could see a double-digit growth in earnings from the first half of 2006, benefiting from the country's booming economy and their early public listings.

Analysts surveyed by China Daily rated China Construction Bank (CCB) as having the most potential for Hong Kong-listed mainland banking stock.

CCB is expected to achieve earnings of some 23 billion yuan (US$2.9 billion) for the first six months of this year.

Shanghai-based Bank of Communications (BoCom), which went public in Hong Kong in the middle of last year, is predicated to post some 6 billion yuan (US$750 million) of the first half earnings.

While bank watchers generally assume the freshly listed Bank of China (BOC) will post a growth that might fluctuate by 20 per cent to 15.5 billion yuan (US$1.9 billion).

The predictions were gathered from a survey of eight Hong Kong-based analysts and investment banks.

The robust economic upturn and loan growth in the first half are the major reason for the positive predictions, said the analysts.

The mainland's economy grew by a higher-than-expected 10.9 per cent in the first half of this year compared to the same period a year ago, prompting the People's Bank of China, the central bank, to announce a rise in the reserve requirement ratio of banks by 50 basis points from August 15, to reduce the amount of money available for investment.

Therefore, analysts said banks' second-half earnings could slow down faced with a tightened money supply.

Most securities houses give CCB a strong "buy" recommendation, because investment in rural infrastructure, which serves as a key contributor to the bank's soaring loan growth, will remain unaffected.

Citing CCB as a "safe haven," Europe's leading bank BNP Paribas said the strong rural infrastructure investments will not be affected by the tightening policies.

BoCom and the BOC, however, were given less attractive ratings due to their high price to earnings ratios (P/E).

"Strong rural infrastructure investment should not only compensate for the deceleration in loans for property investment and retail mortgages, but also help to digest some capacity in the building material and manufacturing sectors and mitigate pressure on asset quality," said the European lender's investment banking arm in a report.

Morgan Stanley said it still sees good value at CCB, which is likely to be included in Hong Kong's benchmark Hang Seng Index in September, though the tightening policy will affect its loan growth to some degree.

The US investment bank said CCB is well-placed to benefit from the higher interest-rate environment in China, and offers better value than the BOC, which it said is overvalued compared to its peers.

"The BOC's foreign exchange lending spread is lower than its renminbi equivalent, while its cost of renminbi deposits is higher than that of peers," Morgan Stanley said in a research note.

Local banking analysts said they have a "wait and see" attitude to the BOC's development.

"It is hard to forecast... BOC has millions and billions of foreign exchange assets, which makes its internal reformation more difficult," said Tang Sing-hing, associate director with Hong Kong-based Tung Tai Securities.

Banking analysts expect BoCom's growth will slow from the four-fold increase it saw in 2005.

Louise Wong, director of Phillip Asset Management, said BoCom's results for the first half of 2006 might not be as favourable as they were last year, since "it was a special occasion that the lender was benefiting from a low tax policy by the banking authorities."

Morgan Stanley said: "BoCom is one of the most expensive stocks in terms of P/E in the region."

The US investment bank rates BoCom "underweight," the equivalent of "sell."

(China Daily August 1, 2006)