Competition eats into CMB margins

The bank still achieved double-digit quarterly profit but Citic Bank's dips 14.7 per cent

PUBLISHED : Tuesday, 30 October, 2012, 12:00am
UPDATED : Tuesday, 30 October, 2012, 4:25am

China Merchants Bank's net profit grew 16.6 per cent in the third quarter from a year earlier, driven by a rise in interest income, but net interest margin dipped amid fierce competition.

Earnings at the mainland's sixth-largest lender by assets reached 11.41 billion yuan (HK$14.16 billion).

The growth was boosted by an 11.3 per cent year-on-year increase in net interest income. However, net interest margin dropped 0.11 percentage point from the second quarter to 2.92 per cent.

Net interest income for the first nine months of this year grew 18.3 per cent from the same period last year to 65.79 billion yuan, mainly as a result of a stable expansion of interest-earning assets, the bank said in a statement to the Hong Kong stock exchange.

China Merchants Bank was more exposed to interest rate cuts than larger state-owned banks, said Dickie Wong, an analyst with Kingston Securities.

"The larger banks have a monopoly advantage, so weathered the fiercer competition better after the interest rate cuts and maintained increases in net interest margin," he said.

Ni Jun, an analyst with Shenyin Wanguo Securities in Shanghai, said the net interest margin of China Merchants Bank and other mainland lenders may drop in the first quarter of next year, as some long-term loans will be due for repricing.

The growth in net profit was also boosted by a 32.9 per cent rise in net fees and commissions. Wong expects fee income to continue rising, as he said the bank is more efficient in its operations than its mainland rivals.

Non-performing loans totalled 10.92 billion yuan at the end of last month, an increase of 1.74 billion yuan from the end of last year. The non-performing loan ratio went up 0.03 percentage point to 0.59 per cent over the period, as the ability of some small and medium-sized enterprises to repay their loans weakened, the bank said.

Ni expects the asset quality of China Merchants Bank to remain stable, as its loans are granted to SMEs in sound financial condition and the bank is conservative in lending to government financing platforms.

Meanwhile, at Citic Bank, the mainland's seventh-largest lender by market value, third-quarter net profit dropped 14.7 per cent to 7.85 billion yuan as the bank made a loan provision of 4 billion yuan compared with 1.81 billion yuan in the same period last year.

It told the Shanghai Stock Exchange that the provision was made out of "prudence". Its non-performing loan ratio stood at 0.6 per cent last month, the same as the end of last year.

Net interest income in the third quarter rose 18.6 per cent from a year ago to 55.72 billion yuan, while net interest margin dropped 0.14 percentage point to 2.82 per cent.