Hong Kong company reporting season

ICBC’s interim profit edges up 0.8pc on new sources of revenue

Non performing loans ratio sees first fall in 14 quarters, though NPL buffer remains below regulatory requirement

PUBLISHED : Tuesday, 30 August, 2016, 5:31pm
UPDATED : Tuesday, 30 August, 2016, 11:05pm

Industrial and Commercial Bank of China said on Tuesday that first half profits edged up 0.8 per cent year on year, slightlybetter that market expectations.

The bank reported interim net profits of 150.6 billion yuan, up from 149.4 billion in the first half of 2015. The result beat the consensus estimate of 148.7 billion yuan of three analysts polled by the South China Morning Post.

ICBC’s slight increase in profits was primarily due to growth in newer sources of revenue for the bank.

Net fee and commission income accounted for 24.8 per cent of the bank’s operating income – up 3.4 percentage points from the first six months of 2015 – and stood at 81.7 billion yuan, up 6 per cent from the same period last year. In a statement to the Hong Kong stock exchange, the bank said that fee and commission income had “critically boosted the bank’s profit growth”.

In contrast, traditional income sources saw declines, and net interest income fell 7.1 per cent year on year.

For the first half, ICBC’s net interest margin (NIM) was 2.21 per cent, 26 basis points down from the end of last year. Speaking to reporters in Beijing, ICBC Chairman Yi Huiman said reasons for the narrowing NIM included the recent five cuts in mainland interest rates, liberalisation of deposit interest rates earlier this year, and the replacement of a business tax by a value added tax (VAT). This last change would have a further impact of six to seven basis points in the second half, Yi said.

ICBC’s declared outstanding non performing loans stood at 196.3 billion yuan at the end of June 2016, and its NPL ratio (non performing loans as a proportion of the bank’s total lending) stood at 1.55 per cent, up 0.05 percentage points from the end of last year but down 0.11 percentage points on the first quarter.

ICBC’s NPL ratio had increased for the 13 quarters prior to the three months to the end of June this year. However, citing current economic conditions both globally and in China, Yi said that it was “too early to say whether or not this is a turning point”.

ICBC has disposed of 113 billion yuan worth of NPLs so far this year, Yi said.

The bank’s allowance of capital set aside to deal with NPLs stood at 143 per cent of total reported NPLs, below the regulatory minimum requirement of 150 per cent. Harry Hu, a director at ratings agency S&P, speaking before the bank announced its results, said this was not a major concern though.

“It is likely that the China Banking Regulatory Commission has relaxed the regulations, even if they have not officially announced that this is the case,” he said.

“The official ratio is actually very high, and is meant to be counter cyclical, so one of its purposes is for it to be reduced in difficult times,” Hu added.

ICBC is among the last of the big Chinese banks to report their results. Last week China Construction Bank announced a rise in profits of 1 per cent for the first half, Bank of Communications, a 0.9 per cent rise and Agricultural Bank of China a 0.5 per cent rise.

In Hong Kong, ICBC’s shares closed at HK$4.97 a share, a 6.62 per cent rise year to date.