Agricultural Bank of China
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The headquarters of the Agricultural Bank of China in Beijing on July 14, 2010. Photo: AFP

Agricultural Bank’s first-half profit rises by 5.4 per cent as China’s third-largest lender defies economic headwinds

  • Net income rose to 128.9 billion yuan while revenue rose by 5.4 per cent in the six months ended June 30
  • The bank’s non-performing loan ratio fell to 1.41 per cent from 1.43 per cent from the beginning of the year
Agricultural Bank of China, the nation’s third-largest bank by assets, posted a 5.4 per cent profit gain in the first half of this year, even as it faces headwinds from narrowing margins and the troubled real estate sector.

Net income rose to 128.9 billion yuan (US$18.6 billion) in the six months ended June 30, from 122.3 billion yuan a year earlier, the Beijing-based bank said in an exchange filing on Monday. The bank’s non-performing loan ratio fell to 1.41 per cent from 1.43 per cent from the beginning of the year.

China’s US$52 trillion banking industry is being closely scrutinised by investors as the country’s rolling Covid-19 lockdowns and a deepening property crisis is slowing economic growth. Banks have been told to boost credit to the embattled developers and smaller businesses even as lending margins shrink and bad loans piled up.

Chinese banks’ exposure to the property sector tops that of any other industry, making them vulnerable to the woes that have already roiled capital markets and burned the nation’s middle class.

A branch of the Agricultural Bank of China in Shanghai on May 14, 2013. Photo: Reuters.

In a worst-case scenario, S&P Global Ratings estimated that 2.4 trillion yuan, or 6.4 per cent of mortgages, are at risk amid a mortgage boycott across more than 90 cities as millions of homes have been left unfinished.

Agricultural Bank has reported 660 million yuan of overdue mortgages on unfinished developments, the largest amount among peers that have disclosed their holdings. The bank’s non-performing loan ratio on real estate grew to 3.97 per cent, from 3.39 per cent at the end of 2021.

Chinese banks’ first-half profit to rise on infrastructure loan growth

Smaller rival Bank of Communications last week reported that bad loans to real estate had jumped by 79 per cent, while China Merchants Bank has reported a doubling of its ratio of non-performing real estate loans.

China’s banks last week lowered their benchmark lending rates, including on mortgage loans, for the second time this year, adding pressure on their margins. The overall margin has narrowed to 1.94 per cent in the second quarter, from 1.98 per cent three months earlier, according to the banking regulator.

Agricultural Bank’s net interest margin narrowed to 2.02 per cent from 2.12 per cent. The lender could soon also see a shake-up in its management leading up to China’s Communist Party congress later this year.

The central bank is likely to name Agricultural Bank’s President Zhang Qingsong as a deputy governor of the People’s Bank of China, Caixin reported, citing unidentified people with knowledge of the matter.