Analysts expect mainland banks to average at least 30 percent growth this year, buoyed by a robust economy and despite more stringent tightening measures.
The reduction of corporate tax on domestic banks from 33 percent to 25 percent could contribute as much as 10 percent growth, said Simon Ho, regional financial analyst at ABN Amro.
"Chinese banks could have annual growth of 30 percent in earnings in 2008 and 2009, with this year leveraging the highest because of the tax reason," Ho said.
The announcement of better-than-expected 2007 profits by China Merchants Bank (3968) has helped ease worries. On Monday the Shenzhen-based lender said its 2007 performance will beat market consensus to record a 110 percent rise.
The H-financials index, barometer of mainland financials, rebounded yesterday by nearly 1 percent to close at 17,183 following a 2.3 percent plunge on Monday.
Shares of Merchants Bank rose 3 percent to close at HK$31 after a 3.22 precent drop the day before.
"If China could avoid hyper-inflation in first half of 2008 and achieve a soft landing, there could be modest upside to our 2008 estimates," Ning Ma, banking analyst at Goldman Sachs, wrote yesterday.
"This confirms our view that the fourth-quarter and 2008 earnings forecasts of bigger banks such as Industrial and Commercial Bank of China (1398), Bank of Communications (3328) and China Construction Bank (0939) could be strong and visible," he said.
"Chinese banks now are at a reasonable price to 2008 earnings ratio of about 14 times," said Ho at ABN.
