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Hong Kong company reporting season

China Merchants flags slowing bad loan growth

NPL ratio rises 0.02pc since March to 1.83pc. Interim profit rises 6.8pc to 35.2 billion yuan

PUBLISHED : Thursday, 18 August, 2016, 9:39pm
UPDATED : Thursday, 18 August, 2016, 10:28pm

China Merchants Bank saw its net profit rise 6.8 per cent in the first half of the year to 35.2 billion yuan, a slightly lower rate than in the first quarter.

The bank recorded 8.2 per cent growth in net profit for the first half of 2015, and 15 per cent for the first half of 2014.

Within its latest figures released on Thursday, the bank also revealed it had managed to slow its non performing loan (NPL) ratio to 1.83 per cent at the end of June, up 0.15 per cent from the end of last year, but just 0.02 percentage points ahead since the end of March.

NPL is bad debt as a percentage of total loans outstanding. The total volume of NPLs at China’s commercial banks hit 1.44 trillion yuan as at the end of June, the highest since 2005, showed data from the China Banking Regulatory Commission.

But the national banking sector NPL ratio was 1.75 per cent, the same as in March.

Earlier this year, the bank was among the first Chinese banks to issue securities backed by NPLs.

China Merchants Bank should benefit as the first mover in pricing the NABS and attracting solid investors
Leon Qi and Yan Li, analysts at Daiwa Capital Markets

In May, it offloaded a security backed by unsecured credit card receivables worth 223 million yuan, and in June issued a second asset-backed security worth 470 million yuan based on underlying NPL assets of personal business loans worth 1.15 billion yuan.

“We estimate the two NABS (NPL backed asset backed securities) are likely lower the NPL ratio by seven and four basis points respectively,” said Leon Qi and Yan Li, analysts at Daiwa Capital Markets in a research note published after the bank issued its preliminary results, earlier this month.

The analysts also said China Merchants was planning to issuing a third security based on corporate non performing loans.

“We reiterate our view that China Merchants Bank should benefit as the first mover in pricing the NABS and attracting solid investors,” Qi and Li added.

The bank’s loans to mining companies have been identified as the most likely to run into difficulty. Its lending to the sector saw an NPL ratio of 14.7 per cent in the first half of this year, up from 6.7 per cent at the end of 2015.

The bank said in its statement on Thursday that its allowance coverage ratio remained steady, and its risk loss endurance capability improved in the first half.

China Merchants Bank’s non-performing loan allowance coverage ratio was 189.11 per cent. The minimum regulatory requirement is 150 per cent.

The total amount of bad loans on the bank’s books increased by 16.6 per cent compared to the end of last year to reach 55.256 billion yuan.