China Citic Bank braces for austerity challenges
China Citic Bank said its business model faced austere challenges after posting a 5.07 per cent growth in net profit in the first half and a 93.7 per cent surge in impairment losses.
Net earnings were 20.25 billion yuan (HK$25.5 billion) in the first six months, Citic Bank, the nation's seventh-largest lender by assets, said in an interim report yesterday. Analysts had expected 19.85 billion yuan.
"Chinese banks' business model, with high reliance on interest spread, is seriously challenged by accelerating interest rate liberalisation," the bank's management said. "We will adjust our business to focus on light-capital consuming businesses and those with smaller risks."
For the second quarter, net profit climbed about 2.1 per cent year on year to 11.03 billion yuan.
The bank's first-half profit increase would be the slowest of the nine Hong Kong-listed mainland banks, mainly from high exposure to problematic borrowers in eastern provinces, analysts said.
Outstanding non-performing loans surged by a third over the past six months, with the NPL ratio climbing 0.16 percentage point to 0.9 per cent, it said.
Provision coverage of impaired loans declined 64.32 percentage points over the first half to 223.93 per cent. Impairment losses from loans and other assets rose 93.7 per cent year on year to 4.89 billion yuan.
"Due to the economic slowdown, bad loans rebounded in some industries and some regions," its management said. "We will reduce leverage and control the scale of loans to avoid excessive risk."
Loans and advances expanded 9.72 per cent in the first half, while deposits grew 15.91 per cent.
Net interest margin - a key measure of lending profitability - stood at 2.59 per cent, narrowing from 2.89 per cent a year earlier.
Medium and small-scaled banks are the most capital-thirsty lenders on the mainland, as loan defaults and heavy off-balance sheet assets erode profits and generate huge demand for capital-raising. No interim dividend will be distributed. Citic Bank shares fell 0.83 per cent to 3.6 yuan in Shanghai before results were released. It fell 1.8 per cent to HK$3.78 in Hong Kong.