Asset quality issues shade Chongqing bank earnings

City lender boosts net profit 15pc for first half, but losses from asset impairment almost double

PUBLISHED : Tuesday, 27 August, 2013, 12:00am
UPDATED : Tuesday, 27 August, 2013, 4:02am

Chongqing Rural Commercial Bank posted muted second-quarter results yesterday and analysts said asset quality remained a concern, with losses from asset impairment almost doubling year on year in the first half of the year.

The joint-stock bank said its net profit in the first half of the year rose 14.7 per cent to 3.21 billion yuan (HK$4.1 billion) on an increase in net interest income. It earned 1.6 billion yuan in the second quarter, down 0.9 per cent from the first quarter.

The lender's bad loans fell to 1.4 billion yuan in the first half, 289 million yuan less than at the end of last year. Its bad-loan ratio declined a quarter of a percentage point to 0.73 per cent. But special-mention loans - potentially weak loans or assets presenting a credit risk but which are less risky than substandard assets - jumped 48.8 per cent to 5.9 billion yuan in the first half. That compared with 10.8 per cent growth in total loans and advances to customers in the same period. Total losses from asset impairment grew 95 per cent year on year to 463 million yuan.

In a filing to the stock exchange, it said the increase in special-mention loans was due to its "collation and surveillance on industries and enterprises significantly affected by the downturn in the economy". It said it had categorised the credit risk of the enterprises involved, adopted a more prudent categorisation principle and downgraded some normal loans to special-mention.

A Hong Kong-based analyst said he was concerned about potential asset deterioration at the lender but that its bottom line was in line with market expectations.

The bank's net interest income rose 21.7 per cent in the first half from the same period last year. Net income from fees and commissions jumped 69.1 per cent.

Its net interest margin, the key measure of lending profitability, totalled 3.39 per cent in the six months. That compared with 3.31 per cent in the first quarter.

The bank said the global economy would continue to recover because of the sustained recovery in the US, signs of recovery in Europe and generally steady emerging markets.

The bank's stock price closed 2 per cent higher at HK$3.56 yesterday. It has fallen 16 per cent this year, underperforming the benchmark Hang Seng Index, which has lost 2.8 per cent.