Huishang Bank annual pretax profit rises 7.6 per cent to 8 billion yuan
China’s largest inland city commercial lender Huishang Bank reported 2015 pretax profit rose 7.6 per cent to 8 billion yuan (HK$9.6 billion), beating analysts’ expectations of 7.9 billion yuan, yet ranking among the slowest growing lenders of its kind to report in the latest earnings announcement season.
Huishang’s last set of half-yearly results showed rising non-performing loans. The bank’s home base of Anhui is one of the epicentres in the central government’s fight to cut back on excess industrial capacity, such as coal and cement.
In the latest results, however, the level of non-performing loan deterioration appears to have moderated. As of the end of 2015, Huishang said NPLs were 0.98 per cent, an increase of 1 basis point compared to end the first half of 2015. At the last half-year result announcement, the bank reported NPLs had climbed 14 basis points compared to the end of 2014.
“This was largely helped by write-offs,” Nicole Wu, China financial analyst at DBS said. “In the second half of last year, annualised new NPL formation has accelerated to 2.76 per cent from 1.29 per cent in the first half based on our calculation.”
The bank’s management expects more rate cuts to come this year.
“The pressure for NPLs to rebound is still high. It’s hard to say whether the economy has bottomed out,” said Li Hongming, chairman of Huishang.
Li said the bank will look to strengthen its asset-liability management by conducting stronger audits to control at-risk portfolios, while bolstering lending to higher yielding retail clients and expanding its more lucrative credit card businesses.
Huishang last year sold 782 million yuan of its NPL portfolio to a local Anhui-based asset management outfit.
Li said the bank is aware of the recent heated debate on the equity-loan swap in the industry.
“The nature of the plan is just to supplement NPL recovery works. It’s never the main pursuit to resolve them,” Li said.
He added that Huishang will focus on its own means and asset sales to manage the bad debt issues.
Meanwhile, on the issue of the debt swap programme for the local government’s old debt, Wu Xuemin, president of Huishang, said the bank has bought 20 billion yuan worth of Anhui government bonds last year. Of these, 4 billion yuan worth went into swapping out old government debt.
The bank has a rolling balance sheet that creates the same amount of new loans to government-related businesses. Huishang in total has a gross 20 billion yuan exposure, 10 per cent of the bank’s loan books, to them.
Wu said he expects the local government will issue about the same amount of new bonds as last year, at 129 billion yuan. But unlike other local city lenders, Huishang is not under an “investment requirement” from the local government to take part in the debt purchase.
The bank plans, pending regulatory approval, to issue preferential shares to raise new capital in order to support its balance sheet growth.