THE Industrial and Commercial Bank of China and the Agricultural Bank of China Ltd yesterday reported record first-half profits on better pricing power for loans and dismissed rising concerns over loans to local governments.

The two banks joined China Construction Bank and the Bank of China in unveiling record six-month profits, benefiting from China's move to raise interest rates and further helped by fast-rising fee income.

ICBC, in which Goldman Sachs and American Express hold stakes, posted a January-June net profit of 109.5 billion yuan (US$17.14 billion). It was 29.4 percent higher than the 84.6 billion yuan it made in the same period last year.

Net interest margin, which measures the profitability of loans, widened to 2.6 percent from 2.44 percent at the end of 2010. Non-performing loans stood at 0.95 percent, down from 1.08 percent at the end of 2010.

Helping boost earnings was fee and commission income, which rose 46 percent to 56.8 billion yuan from a year ago. ICBC's investment banking arm is Hong Kong-based ICBC International, which has snagged several high-profile deals, including Brazilian oil giant Petrobras' US$70 billion share sale.

AgBank recorded a 66.67 billion yuan profit for the January-June period, up from 45.8 billion yuan a year ago.

"Going forward, they're not going to be able to post these type of earnings," Ken Peng, senior economist at BNP Paribas said. "The regulators are starting to catch onto the types of grey areas in the banking system. Also, interest rates should be normalizing."

China has been trying to curb bank lending by raising interest rates and ordering banks to keep more reserves with the central bank.