China Merchants Bank sees tough environment ahead

PUBLISHED : Saturday, 17 August, 2013, 12:00am
UPDATED : Tuesday, 23 January, 2018, 11:45am

China Merchants Bank expects big challenges ahead as it revealed first-half profit of 26.2 billion yuan (HK$33.2 billion), a day after it won approval to sell shares in Hong Kong in what could be the world's second-biggest stock offering this year.

The regulatory permission to sell about 680 million shares in Hong Kong and 3.07 billion shares in Shanghai clears the way for a 35 billion yuan offering to the bank's shareholders.

Banks will be more actively seeking fundraising in capital markets after the securities regulator opened the door for Merchants Bank
Deng Mao, analyst with Dongguan Securities

Analysts expect more lenders to follow suit.

"Banks will be more actively seeking fundraising in capital markets after the securities regulator opened the door for Merchants Bank," said Deng Mao, an analyst with Dongguan Securities.

The bank has postponed the sale twice because of approval delays. The China Securities Regulatory Commission has since 2010 repeatedly suggested banks minimise the impact on the market by replenishing capital from retained earnings, rather than by tapping equity markets.

"Banks are caught between the ambition to grow their capital-consuming loan busi- ness and the pressure to meet regulatory capital adequacy requirements, which makes them thirsty for equity capital," Deng said.

Merchants Bank, the nation's sixth-largest by assets, said tier-1 capital adequacy ratio dropped 0.34 percentage point to 8 per cent in the first half while capital adequacy ratio fell 0.69 point to 10.72 per cent.

The bank said net profit rose 12.4 per cent as robust fee growth offset impairment loss from rising bad loans.

"The complicated economic and financial environment would pose an austere challenge to our bank's business expansion, risk prevention, profit growth and internal management," it said.

Outstanding non-performing loans climbed 27.6 per cent to 14.9 billion yuan, with the ratio in total loans up 0.1 percentage point at 0.71 per cent at the end of June.

Mainland banks' non-performing loans rose for a seventh quarter, by 13 billion yuan, over the second quarter to 539.5 billion yuan, the China Banking Regulatory Commission said.

Soured debt increased across all lender categories, including state-owned and regional banks.

Average profit growth of the 16 listed mainland banks is expected to slow to 8 per cent from 17.4 per cent last year, amid the economic slowdown and interest rate liberalisation, the China Banking Association said.

Merchants Bank's loans and advances expanded 10.2 per cent in the first half, while net interest margin, a key measure of lending profitability, narrowed 0.22 percentage point to 2.89 per cent.

Net fee and commission income grew 45.5 per cent, with net fee income from bank cards up 43 per cent and that from retail banking wealth management 31 per cent higher.