Merchants Bank earnings surge 120pc
Net profit rises to 6.1b yuan as higher loan demand boosts income
China Merchants Bank, the Shenzhen-based lender, said profit surged 120 per cent in the first half after it earned more interest from higher loan demand amid the country's fast economic growth.
Net profit rose to 6.12 billion yuan in the first six months from 2.77 billion yuan a year ago, higher than market expectations of less than six billion yuan and almost approached the full-year profit of 6.79 billion yuan last year.
'The steady and rapid economic growth, the acceleration of the growth rate of enterprises' profitability and the steady increase of citizens' income and consumption jointly created an advantageous environment for the company's profit, asset quality and business scale,' Merchants Bank said last night.
Earnings of Merchants Bank and other mainland lenders have been boosted by the double-digit economic growth that prompted companies and consumers to borrow more to spend.
Mainland banks are also tapping into fee-based businesses such as wealth management and credit cards as a strategy to strengthen their financial positions after Beijing let foreign lenders run yuan-denominated businesses this year.
'We expected the H-share banks to show robust growth of more than 50 per cent in first half,' said Steven Chan, an analyst at Bear Stearns.
Merchants Bank's rivals such as Industrial and Commercial Bank of China and China Citic Bank Corp have released estimates that profits would surge 50 to 100 per cent in the first half.
Merchants Bank's net interest income rose 55.9 per cent to 14.69 billion yuan as loans grew 18 per cent to 629.5 billion yuan.
It said the one-year interest margin narrowed after the central bank raised interest rates and the deposit reserve ratio a few times in the first half. However, as the bank's deposits were mainly current deposits, the weighted interest margin had increased.
Its non-interest income jumped 88.4 per cent to 2.79 billion yuan, accounting for 16 per cent of its operating income, up 1.6 percentage points from a year ago.
The bank issued 4.16 million credit cards in the first half, bringing the total to 14.51 million, while credit card receivables rose 127.04 per cent to 14 billion yuan.
Impairment charges for bad loans fell 7 per cent to 1.5 billion yuan while the non-performing loan ratio improved to 1.66 per cent from 2.12 per cent at the end of last year.
The subprime mortgage problem in the United States had no impact on the company because it did not have any investment in related products, Merchants Bank said.
Despite the rosy first-half growth, mainland banks are facing challenges including the entry of more foreign rivals and continued government efforts to tighten credit to prevent overheating in the economy.
Merchants Bank said it would be exposed to the uncertainties of monetary policy as macro-control policies were being gradually implemented, which would affect the growth of the company's loan portfolio.
Meanwhile, the bank said its board had approved the amendment of the incentive scheme in which total options granted should not exceed 10 per cent of its equity.
Merchants Bank's A shares rose 5.5 per cent yesterday to 36.10 yuan before the earnings statement while its Hong Kong listed shares gained 2.47 per cent to HK$29.05.
Founded on April 8, 1987, with its head office in Shenzhen, Merchants Bank is the first shareholding commercial bank wholly owned by corporate legal entities. It listed on the Shanghai Stock Exchange on April 9, 2002.
After 18 years of development, Merchants Bank has transformed from a regional lender into a national commercial bank, setting up branches in more than 30 key mainland cities, as well as in Hong Kong and with a representative office in New York.
China Merchants Bank's net interest income at 14.69 billion yuan was up: 55.9%