Chongqing Rural Commercial Bank says recent changes to regulations will continue to impinge on fee revenue and lending profitability, despite posting higher profit for the first half of the year. The bank, a big lender to farmers and small businesses in the southwest of the mainland, posted net profit of 2.8 billion yuan (HK$3.41 billion), 25.3 per cent higher than a year earlier. Tan Yuansheng, the bank's president, said it was preparing to be hit by narrowing net interest margins, a measure of the spread between cost of funds and lending income, mostly in the second half and next year as customers renewed their one-year deposits. In June, the central bank allowed lenders to offer depositors interest rates up to 10 per cent above the official benchmark rate, effectively increasing funding costs as lenders compete for savings. "We expect some of the funding pressure to be offset by our strong pricing abilities in loans, " Tan said. He said his bank had a large client base of small and medium-sized enterprises. Tan said recent regulatory bans on "financial consulting fees" shrank income by 40 million yuan in the first half compared with a year earlier. The bank received more than 300 million yuan of such fees last year, an income channel that has been wiped out this year. Unlike its peers, which mostly experienced increases in bad loans, Chongqing Rural Commercial said non-performing loans had fallen 6.2 per cent from the end of last year to 1.95 billion yuan. The bank's non-performing loan ratio fell 0.25 percentage point to 1.19 per cent. Tan said the ratio could fall below 1 per cent by the end of the year.