Merchants Bank shares fall after weak results

PUBLISHED : Tuesday, 01 September, 2009, 12:00am
UPDATED : Tuesday, 01 September, 2009, 12:00am

Shares of China Merchants Bank, the country's sixth-largest lender, fell as much as 6 per cent yesterday after the lender posted weaker interim results and revised up its fund-raising target.

The lender, based in Shenzhen, slid to HK$16.36 in the morning session before clawing back some of the losses to close at HK$16.88, down 3.21 per cent on the day.

However, chairman Qin Xiao said he did not expect the bank's fund-raising plans, which still need shareholder approval, to be affected by the stock market volatility.

'It is inevitable there will be some volatility as the economic recovery is still ongoing, but it is within expectations,' he said.

He added that the bank's tier-1 capital would increase from 6.5 to 8.5 per cent and its total capital adequacy ratio from 10.63 to 12.6 per cent after the rights issue.

China Merchants Bank said last week, after the government unveiled plans to impose a higher capital adequacy standard on mainland lenders, that it would lift the upper limit of its fund-raising target from 18 billion yuan (HK$20.42 billion) to 22 billion by revising up the ratio of its rights issue to 2.5 shares for every 10 shares held, from two for 10.

Morgan Stanley raised its target price on the bank to HK$17.79 from HK$16.15 on expectations that it would experience slightly stronger growth in the medium term as a result of its capital raising.

'Merchants' internal capital generation is adequate to sustain a reasonable tier-1 level of about 8 per cent over the next two to three years,' the US brokerage said.

However, Credit Suisse cut its earnings forecast for the bank by 4.8 per cent this year and 0.3 per cent next year, as it said quality growth might be difficult before the rights issue was completed.

Credit Suisse said the bank remained solid and was best positioned for a recovery in the mainland's private sector.

Merchants Bank's interim profit fell 37.62 per cent to 8.26 billion yuan from a year ago as interest margin narrowed 142 basis points to 2.24 per cent, while impairment losses rose 87 per cent to 2.6 billion yuan.

President Ma Weihua did not expect non-performing loans to rise substantially in the second half, as economic recovery took hold.

Meanwhile, the bank said its net interest margin had stabilised since May and it expected the business environment and central bank policy to be favourable to small and medium-sized enterprises and retailers in the second half. The better capital market conditions would mean that further cuts in interest rates were unlikely, which was positive for the bank's growth.

'There is no reason to be concerned that Merchants Bank's 'legend of high growth' has been broken,' said Ma.

Earnings slump

Impairment losses and lower interest margin dent lender's profit

Merchants Bank's interim net was 8.26 billion yuan, a year-on-year decline of: 37.6%