Agricultural Bank of China

Downfall sends a message to the banks

Banks need to impose stronger self-regulation says Agricultural Bank of China president as lender reports rise in first-half earnings

PUBLISHED : Thursday, 30 August, 2012, 12:00am
UPDATED : Thursday, 30 August, 2012, 3:17am

The downfall of a former executive director at Agricultural Bank of China sends a warning signal to all bankers that they need to impose stronger self-regulation, the lender's president said yesterday at a media briefing on the bank's latest results.

The mainland's third-largest bank by assets said net profit rose about 21 per cent to 80.5 billion yuan (HK$98.46 billion) in the first half of this year, after Yang Kun resigned as an executive director amid a widening probe into allegations of illegal gambling and misappropriation of clients' money.

"The incident has affected our bank's reputation but not our performance," said Zhang Yun, Agricultural Bank's president, who added that Yang is being investigated because of "personal moral problems."

The bank reported fewer bad loans, but lending profitability and fee income from custodian and credit-card business weakened mainly because of regulatory changes and stronger competition.

Bad loans fell 0.6 percentage point to 84.5 billion yuan at the end of June compared with the end of the first quarter. Non-performing loan ratios, bad debt measured against total loans, improved 0.1 percentage point to 1.39 per cent compared with the end of the first quarter.

But total overdue loans, which haven't yet been classified as bad, spiked about 15 per cent to 85 billion yuan, due to increasing defaults among small and medium enterprises, especially in coastal regions. The bank, however, said that credit quality is "under control". Provision for bad loans was increased. Money set aside for potential bad loans against total loans rose 0.04 percentage point to 4.12 per cent compared with the end of last year.

Net interest margin fell 0.04 percentage point to 2.85 per cent compared with the end of last year because of a one-time accounting method change and weaker pricing abilities, especially in the second quarter of this year.

Growth in net fee and commission income such as revenue from custodian and credit-card fees slowed, rising 4.8 per cent to 38.9 billion yuan. This was mainly due to weaker business in yuan settlement and regulatory clampdowns on levying certain consulting fees.

Shi Shenglin, the bank's deputy general manager of the finance and accounting department, said the bank would try to increase fees through other channels such as wealth management products.

Total outstanding loans grew 8 per cent to 6.08 billion yuan. Deposits rose about 10 per cent to 10.6 billion yuan. The bank's loan-to-deposit ratio fell 0.28 percentage point to 57.33 per cent compared with the end of last year. Mainland banks continued to struggle to attract more deposits, as customers shifted their savings to other investment channels with higher returns.

The bank's capital adequacy ratio - capital measured against risk-weighted assets - rose 0.08 percentage point to 12.02 per cent compared with the end of last year. Its core capital, essentially consisting of equity, rose 0.15 percentage point to 9.65 per cent against risk-weighted assets, over the same period.

Its share price fell 1 per cent to HK$2.97 yesterday before the earnings announcement.