Hong Kong company reporting season

“We should tighten our belts,” says AgBank board chair

Bank announces a rise in interim net profits of just 0.5 per cent but beats analysts’ expectations

PUBLISHED : Friday, 26 August, 2016, 9:18pm
UPDATED : Friday, 26 August, 2016, 11:09pm

Agricultural Bank of China reported slim profit growth for the first half of the year as it continues to face a challenging operating environment.

“The non performing loan ratio is on the rise, and there is no efficient demand for loans. We should tighten our belts,” said Zhou Mubing, the bank’s chairman of the board.

Agricultural Bank announced today in Beijing that its net profit rose by 0.5 per cent in the first half of this year, beating the 1.1 per cent decline predicted by three analysts polled by the South China Morning Post.

The bank reported net profit of 105.1 billion yuan for the first half of 2016, just up from 104.5 billion yuan for the same period last year.

Its reported non performing loan ratio stood at 2.4 per cent as of the end of June, well above the Chinese banking industry average 1.78 per cent, but an increase of just 0.01 of a percentage point since the end of last year.

“Our NPL level remained broadly stable in the first half,” said Zhao Huan, the bank’s president. “There were some new NPLs but we also stepped up our efforts to recover or transfer NPLs and we disposed of over 60 billion yuan worth of NPLs this year.”

The traditional role of banks in taking deposits and issuing loans is no longer sufficient
Zhou Mubing, chairman of the board, AgBank

Mainland banks are required to set aside a significant amount of capital to absorb potential loses from bad debts, impacting on profits, though important for stability.

As of the end of June, Agricultural Bank’s NPL coverage ratio had dropped to 177 per cent, above the regulatory requirement of 150 per cent and higher than many of its competitors, but still down from 189 per cent on December 31 last year.

Net interest income dropped by 9 per cent in the first six months on an annual basis to stand at 199 billion yuan, though fee and commission income rose by 7 per cent year-on-year to just over 51 billion yuan.

“The traditional role of banks in taking deposits and issuing loans is no longer sufficient. We need to expand our business and offer more services,” said Zhou, citing private banking among several potential areas for expansion.

Another troubling sign for the bank was a decline in its net interest margin to 2.31 per cent for the first half of this year down from 2.78 per cent in the same period last year.

Interest income from corporate loans decreased by 18 per cent, while interest income from retail loans declined by 9 per cent. The bank said that this was primarily a result of interest rate cuts by the People’s Bank of China, and tax changes.

Agricultural Bank of China is the third of China’s big five banks to announce its results. Yesterday, China Construction Bank announced a rise in profits of 1 per cent for the first half and Bank of Communications announced a rise in profits of 0.9 per cent. Bank of China, and Industrial and Commercial Bank of China will declare their interim results on Tuesday.

Agricultural Bank’s share price stood at HK$3.13 a share at close of trading on Friday, down 1.26 per cent year-to-date.