Agricultural Bank of China issues profitability warning even as it posts higher-than-expected interim gain
- China’s third-largest commercial lender posts a 3.9 per cent year-on-year gain in net profit for the six months ending on June 30
- Net interest margins might face further pressure in the second half of 2023: bank president
Agricultural Bank of China (ABC), the country’s third-largest commercial lender with total assets worth 38.03 trillion yuan (US$5.22 trillion), on Tuesday posted a 3.9 per cent year-on-year gain in net profit to 133.83 billion yuan in the six months ending on June 30. The lender beat expectations of a 2.6 per cent increase to 132.3 billion yuan by analysts polled by Bloomberg.
The bank’s non-performing loan (NPL) ratio, a measure of its exposure to delayed or missed loan payments that could dent profits, fell to 1.35 per cent compared with 1.37 per cent last December.
“Given the current trend of economic recovery in China, and as we are responding to the regulator’s call to reduce financing barriers for the real economy … [these factors] combined with a potential cut to existing mortgages in the near future, our net interest margins might face further pressure in the second half of this year,” Fu Wanjun, ABC’s president, said in a post-earnings press conference on Tuesday. The net interest margin is the amount of interest a bank earns on loans compared to the amount it pays on deposits.
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Goldman Sachs forecast recently that real estate distress could trigger 1.9 trillion yuan of credit losses, based on a 10 per cent loss rate from the recent cracks in the bond market. Banks could suffer losses of 1.2 trillion yuan, or 61 per cent of the total, it added.
Bank of Communications, China Merchants Bank report more loan stress
ABC is already feeling a strain on its profitability: it reported a net interest margin of 1.66 per cent, a sharp decline from 2.02 per cent a year ago.
The Beijing-based bank reported property-related bad loans worth 51.69 billion yuan, as well as bad residential mortgage loans worth 26.71 billion yuan.
China Construction Bank (CCB), another major state-owned lender that disclosed its interim results last Wednesday, in comparison, reported 39.6 billion yuan in real estate-related bad loans. CCB’s net interest margin declined 0.3 per cent year on year to 1.79 per cent.
Rise in bad loans to China’s property sector dampen top banks’ earnings
While Beijing is calling on major state-owned lenders to provide financing support to property developers and revive demand, it has also signalled its determination to protect bank margins and prevent the property crisis from spilling over into the broader finance sector.
The People’s Bank of China last week surprised markets with a lower-than-expected cut to the short-term loan prime rate, while leaving its key mortgage benchmark lending rate unchanged.
Other major state-owned commercial banks, including Bank of China, Bank of China (Hong Kong) and Industrial and Commercial Bank of China, will release their interim earnings on Wednesday.
ABC shares rose 2.7 per cent to close at HK$2.67 on Tuesday evening. The broader Hang Seng Index advanced 2 per cent.
