China Citic Bank posts slower 2.5pc profit rise on lending push
First-half net income climbs 2.51 per cent to 22.6 billion yuan, but stock rallies in Shanghai
Profit growth slowed in the first half of the year for China Citic Bank Corp as the lender pushed forward with a corporate lending strategy at a time when many mainland companies were coming up short on payments.
The Beijing-based bank on Tuesday said it turned 22.6 billion yuan in net profit between January and June, an increase of 2.51 per cent on the same period last year.
Over the past two years, the bank's credit cost has more than doubled to 1.39 per cent, and net interest margin, a measure on the profitability of lending, has fallen more than its peers, to 2.32 per cent in the first half.
While nearly all other banks traded on the mainland's two main exchanges followed the Shanghai Composite Index's deep 6 per cent dive on Tuesday, Citic Bank closed 1.88 per cent higher.
However, the bank's stock closed 0.94 per cent lower in Hong Kong.
Analysts said the movement might have indicated high expectations for the release of the interim results.
One analyst said Citic Bank had the most outstanding shares of any bank, which may have led to the price rally.
The bank's mainland share price is up more than 70 per cent from a year earlier, outperforming many other joint-stock banks.
China Everbright Bank, which fell 5.15 per cent on Tuesday, was up about 60 per cent from a year ago.
Still, the bank is not a top pick among analysts mainly because of its strong exposure to corporate lending and the level of loans expected to sour in that industry.
Starting in 2012, the bank rapidly grew its corporate business under the direction of former chief executive Zhu Xiaohuang, who was promptly replaced last year when it began experiencing asset quality problems.
Citic Bank has maintained its exposure to corporate lending at about 70 per cent of total loans for more than two years. That business also accounted for about 75 per cent of all non-performing loans in the first half of the year.
China has one of the world's highest debt-gross domestic product ratios and a slowing economy, the combination of which is expected to lead to increasing corporate defaults.
After notching an early surge in non-performing loans last year, Citic Bank appeared to have taken some control over the deterioration of asset quality in the first half.
Its non-performing loan ratio crept up by just 0.02 per cent to 1.32 per cent, below the national average for commercial banks of 1.5 per cent.
At the same time, the percentage of loans lumped into the "special mention" category ballooned to 3.92 per cent of total loans from 3.12 per cent six months earlier.
Analysts said the category was a grey area for asset quality and likely home to many unrecoverable loans.
