Agricultural Bank of China said yesterday it would face a challenging business environment in the second half amid sluggish economic growth but that its bad debts would stabilise, as it reported a better-than-expected first-half profit.
The mainland's third-largest lender said net profit rose 14.7 per cent from a year earlier to 92.35 billion yuan (HK$117 billion), beating the 90.59 billion yuan mean estimate of six analysts polled by Bloomberg.
Net profit rose 22.4 per cent year on year in the second quarter, faster than the 8.2 per cent pace in the first quarter. The bank set aside 10 billion yuan in loan-loss provisions for the second quarter, equal to 8.6 per cent of its operating income, down from 10.3 per cent in the first quarter. Bad-loan coverage rose to 344.54 per cent in June from 326.14 per cent at the end of last year.
"We are well aware that the internal and external environment of the banking industry in China is undergoing dramatic changes, which may bring arduous challenges to our operation and management," chairman Jiang Chaoliang said in a statement.
The lender's non-performing loans should stabilise in the second half, reducing its non-performing loan ratio, Song Xianping, the bank's director of risk management, told a news conference.
While non-performing loans rose 1 per cent to 86.7 billion yuan in the first half, the NPL ratio dropped 0.08 percentage point to 1.25 per cent. Impairment losses from loans and other assets fell 1.32 per cent to 22.5 billion yuan.
Lou Wenlong, a vice-president at the bank, said: "The ongoing liberalisation of interest rates is expected to impact the bank's assets and liabilities and weigh on its net interest margin in the second half."
Loans and advances to customers expanded 8 per cent from the end of last year, while deposits from customers grew 5.7 per cent, the bank said.
Net interest margin - a key measure of lending profitability - fell to 2.74 per cent in June from 2.81 per cent a year earlier.
The bank was well-positioned among mainland banks because it had the "strongest liquidity and deposit franchise" in the sector and provisions well beyond requirements, Citi analyst Simon Ho said.
Agricultural Bank's capital adequacy ratio fell 0.8 percentage point to 11.81 per cent while its core tier-1 capital adequacy ratio was 9.11 per cent.
The stock fell 0.81 per cent in Shanghai yesterday to close at 2.45 yuan in a market that slipped 0.11 per cent. The bank's shares fell 1.5 per cent to HK$3.29 in Hong Kong, with the market closing 1.6 per cent lower.
Meanwhile, first-half net profit at China Minsheng Banking jumped 19.06 per cent to 22.91 billion yuan, thanks to robust fees and commissions.
Its non-performing loan ratio rose 0.02 percentage point to 0.78 per cent.