China Merchants rises in earnings and bad loans

Analysts say overall loan demand remained weak in the first six months of the year

PUBLISHED : Saturday, 18 August, 2012, 12:00am
UPDATED : Saturday, 18 August, 2012, 3:10am

China Merchants Bank, the country's sixth-largest lender by market capitalisation, said bad loans rose for the second consecutive quarter as credit quality in the Yangtze River and Pearl River Delta regions deteriorated.

The bank's asset quality deterioration was in line with data issued this week by the China Banking Regulatory Commission, which showed bad loans among mainland banks rising about 4.15 per cent to 456.4 billion yuan (HK$557 billion) in the quarter ended June from the preceding quarter.

Sector wide non-performing loan ratios, bad loans measured against total loans, however continue to remain low, as banks managed to increase their assets.

Shenzhen-headquartered China Merchants Bank said net profit rose 25.68 per cent to 23.4 billion yuan, on the back of better fee income and loan business.

Net interest income rose 22 per cent to 43.6 billion yuan in the first half, while fee-based income increased 19 per cent to 9.7 billion yuan.

Bad loans rose nearly 8 per cent to 9.9 billion yuan in the first half, compared with the end of last year, due to defaults across various sectors, including construction, manufacturing and wholesale and retail.

The bank's non-performing loan ratio remained flat compared with the end of last year, thanks to a near 19 per cent growth in assets.

Its loan-loss-reserve ratio, which measures the amount of money put aside for bad loans, also remained flat compared with the end of last year.

The bank's net interest margin, a measure of lending profitability, rose 0.12 percentage points to 3.11 per cent from a year earlier.

Analysts said China Merchants Bank maintains a stronger bargaining power over its large client base of small to medium enterprises in the face of the recent interest rate liberalisation, which puts pressure on the spread between the cost of funds and lending income.

China's overall loan demand has remained weak in the first six months, as the world's second-largest economy continued to weaken.

Chongqing Rural and Commercial Bank, another smaller mainland bank listed in Hong Kong, said yesterday that its net profit rose 25.3 per cent to 2.8 billion yuan in the first six months of this year from a year earlier.

The rise in earnings was boosted by spikes in revenue from loan business and fee income.

The bank saw improvement in loan quality, as bad loans fell by 6.2 per cent to 1.95 billion yuan compared with the end of last year. Non-performing loan ratios fell 0.25 percentage points to 1.19 per cent.