Agricultural Bank of China's net profit grows by 12.65 per cent
Bad loans at the mainland's fourth-largest bank by assets remain high at 1.24 per cent but it is rising at a slower rate than two of its big rivals
Agricultural Bank of China, the mainland's fourth-largest lender by assets, posted the strongest net profit growth along with the highest non-performing loan ratio among rivals that have reported interim earnings this year.
Net profit grew 12.65 per cent in the first six months of the year to 104 billion yuan (HK$130.9 billion), Agricultural Bank said in a filing to the Hong Kong stock exchange.
The non-performing loan ratio remained high at 1.24 per cent but rose just two basis points from the end of last year, a slower rate of growth than at Bank of China and Bank of Communications, both of which reported interim earnings last week.
That puts Agricultural Bank well above the sector average for non-performing loans of 1.08 per cent. The average at the five biggest banks was 1.05 per cent in the second quarter, the banking regulator said earlier this month.
"Non-performing loans [at Agricultural Bank] are quite high but the growth in those loans has stayed slow," said Tang Yayun, an analyst at Northeast Securities in Shanghai. "I think we can say that its bad loans are stable now, especially when you compare that to other banks in China."
The bank's share price closed 0.27 per cent lower before the results were announced. The Hang Seng Index fell 0.37 per cent.
Bank of China's non-performing loan ratio edged up to 1.02 per cent at the end of June from 0.96 per cent at the end of last year. The bank said first-half net profit rose 11.15 per cent to 89.72 billion yuan from the same period last year.
Bank of Communications' bad-loan ratio hit 1.13 per cent at the end of June, up from 1.05 per cent six months earlier. Its net profit growth was slow at 5.6 per cent.
The country's five largest banks were expected to post an average rate of growth of between 7 and 9 per cent this year.
Agricultural Bank's exposure to the mainland property sector, which has seen a slowdown in growth this year, is higher than that of its rivals.
Some small developers went bust this year and more are expected to follow should prices in several cities continue to fall.
The volume of real estate loans at Agricultural Bank grew 10.6 per cent on the same period last year and accounted for 11.7 per cent of total corporate loans, up from 11.3 per cent previously.
Mortgage loans made up 62.1 per cent of retail lending, against 61.7 per cent a year earlier. The volume of mortgage loans grew 12.2 per cent.
That makes the bank one of the most vulnerable to a downturn in the real estate sector, especially given its exposure in rural areas where housing stock is the highest.
However, slightly higher property exposure would not leave the bank standing out in a crisis, analysts said.
"Real estate is still a worry but it's a systemic worry. If there is a major problem with the real estate sector, all the banks will be affected, not just this bank," Tang said.
Agricultural Bank's tier-1 capital adequacy ratio was 8.65 per cent.
International guidelines known as Basel III, which come into effect in 2018, say banks' tier-1 ratio should be 9.5 per cent.