Agbank profit disappoints

PUBLISHED : Friday, 23 March, 2012, 12:00am
UPDATED : Friday, 23 March, 2012, 12:00am


Agricultural Bank of China, the third largest lender by assets on the mainland, missed analysts' earnings estimates for 2011 after making large provisions for downturn risks.

Jiang Chaoliang, who took over as chairman from Xiang Junbo in November, said the 23 billion yuan (HK$28.2 billion) provision made in the last quarter would not translate into a deterioration in asset quality.

The bank's net profit rose about 29 per cent to 121.9 billion yuan year on year, lower than the average estimate of about 129 billion yuan in a Bloomberg survey of analysts.

The fourth-quarter provision was nearly double what the bank made in the same period the previous year, raising concerns about rising risks.

'Even though the bank reiterates that the provisions were made out of prudential considerations, the market may have different thoughts,' said Sheng Nan, a senior analyst at CCB International Securities.

The bank's bad debt ratio related to local-government financing vehicles (LGFVs) increased year on year and fee income was weak, analysts said. Non-performing-loan ratio related to LGFVs, companies set up by local governments to borrow on behalf of them from banks, reached 1.45 per cent, up 45 basis points compared with the first half of last year.

Total outstanding LGFV loans reached 399.7 billion yuan last year, about 7.1 per cent of total loans. Non-performing LGFV loans reached 5.8 billion yuan.

The bank said it could have made about 2 billion yuan more in fee income had it not cut 221 fees it deemed unreasonable for customers. This came after the banking watchdog stepped up efforts to crack down on irregularities in fee charges.

Jiang said the bank was comfortable with its capital adequacy levels and did not plan to raise capital.

Core capital, which mainly consists of equity, reached 9.5 per cent when measured against risk-weighted assets, down 25 basis points year on year. Total capital adequacy rose 35 basis points to 11.94 per cent, after a 50 billion subordinate bond issue and lower-than-expected dividend payout ratios. Pan Gongsheng, executive vice-president, said Agbank originally calculated core capital adequacy ratios on the assumption of paying out dividend ratios of 40 per cent. But it was lowered by 5 percentage points after state-controlled Central Huijin Investment, a major shareholder of top Chinese banks, agreed to accept a lower dividend.

Jiang said new loans in the first two months were up by 20 billion year on year, a slowdown compared with previous years, mainly due to prudential lending measures and a later-than-usual spring festival that put off many construction projects.

Agbank, which listed in Hong Kong in July in 2010, said it would maintain a dividend payout ratio of 35-50 per cent within the first three years of listing.

Even though the bank reiterates that the provisions were made out of prudential considerations, the market may have different thoughts Sheng Nan, analyst