ICBC profit up 7 per cent as bad loans held in check

World's largest bank meets analyst expectations, but a service fee cut has led mainland lenders across the board to see slower earnings expansion

PUBLISHED : Friday, 29 August, 2014, 1:14am
UPDATED : Friday, 29 August, 2014, 5:14am

Profit at Industrial and Commercial Bank of China rose 7 per cent in the first half from the same period last year, keeping bad loan growth at bay and generally meeting analyst expectations.

The world's largest bank by assets yesterday posted 148.1 billion yuan (HK$186.8 billion) in net profit for the six months to June, compared with 138.3 billion yuan a year ago, according to interim results filed with the Hong Kong stock exchange.

However, along with the other major mainland banks that have reported interim earnings this year, ICBC's year-on-year profit growth slowed considerably from the 12 per cent it posted a year ago.

Quarter-on-quarter growth edged up by just 0.79 per cent. The bank attributed quarterly growth - where some rivals have experienced a slowdown - to an increase in net interest margin boosted by "optimised credit structure and increased yield on bonds investment".

Net interest margin, a gauge on loan profitability, hit 2.62 per cent - five basis points higher than the same period a year ago.

A more than 8 per cent year-on-year increase in net fee and commission income also helped drive growth.

Net interest income grew about 10 per cent year on year to 237.6 billion yuan, pulled down slightly by People's Bank of China regulations, analysts said.

"The central bank required banks to cut service fees and this influenced net interest income across the whole industry," said Richard Cao, a Shenzhen-based analyst at Guotai Junan International.

Cao said competition with joint-stock banks also hurt net interest income at state lenders.

ICBC is the fourth major state bank to report earnings this year. Shanghai-based Bank of Communications last week posted 36.7 billion yuan in net profit, an increase of 5.6 per cent on the same period last year, in line with analysts' expectations, but at less than half the pace of growth last year.

Bank of China said net profit rose 11 per cent to 89.72 billion yuan while Agricultural Bank of China said profit surged 12.65 per cent to 104 billion yuan.

ICBC kept growth in non-performing loans at a lower rate than its rivals.

The non-performing loan ratio hit 0.99 per cent in June, up from 0.94 per cent at the end of last year.

The volume of bad loans increased about 7 per cent to 10.6 billion yuan. Impairment losses increased 10 per cent.

Agricultural Bank's non-performing loan ratio in the first half was 1.24 per cent, far higher than the sector-wide average of 1.08 per cent in the second quarter.

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.

Bank of Communications' bad-loan ratio rose to 1.13 per cent from 1.05 per cent in the same period.

ICBC's share price fell 1.15 per cent to HK$5.14 before the bank's results were posted. The Hang Seng Index ended the day down 0.71 per cent.

An increase in non-performing loans was already priced into the valuation of the banks, analysts have said.