Investment returns make up for bad-loan provisions at Shanghai Pudong

PUBLISHED : Saturday, 29 July, 2000, 12:00am
UPDATED : Saturday, 29 July, 2000, 12:00am

Shanghai Pudong Development Bank, one of the mainland's two listed banks, saw this year's interim operating profits slump 42 per cent due to substantial provisions on loans and other expenses.

But a 52 per cent surge in investment income on its huge holdings of treasury bonds helped lift interim net profits 4.8 per cent to 530.27 million yuan (about HK$496 million), the bank said.

Analysts said bad-loan problems, interest rate cuts and an inability to diversify services due to regulatory controls had all pinched earnings at smaller banks such as Pudong Development. The company's operating profits fell to 153.29 million yuan year on year, it said.

The earnings announcement came hard on the heels of Shenzhen Development Bank, the other listed bank, which reported a 26 per cent year-on-year fall in net interim earnings on Wednesday. Analysts said the earnings woes reflected the weak position of listed banks that lacked the size, market share and strategic positioning of their giant state-owned competitors.

The weak performance also illustrated Pudong's and Shenzhen's difficulty in making inroads into the retail business despite their access to capital on the country's stock markets, analysts said.

Pudong Bank's expansion had increased operating expenditure, and analysts said mainland banks' focus on cleaning up their loan books had further crimped margins.

Overdue loans at Pudong Bank surged to 6.71 billion yuan from 4.85 billion yuan in the first six months of this year, the banksaid. Associated provisions for such loans reached 1.05 billion yuan, compared with one billion yuan in the same period. Provisions for interest income, largely receivables from borrowers, more than doubled to 71.20 million yuan in the January to June period.

The Pudong bank also felt the pinch of Beijing's drive to shift bank savings to investment and consumption, a bank official said. 'The interest rate cut last June, which was sharper on the deposit side [than the lending rate], and the interest income tax on savings accounts have slowed down deposits growth,' he said. 'We are also losing some quality clients who prefer direct financing through the stock markets.'

The mainland has cut its bank interest rates seven times since 1996 and taxed interest income on bank savings in an attempt to stimulate consumer demand and counter nagging deflation. Analysts said lack of business diversification also added to the banks' earnings woes.

'Chinese banks are not allowed to diversify their business into areas such as securities and insurance, that put a cap on their earnings growth,' said one analyst. Reuters