Interim profit of China Merchants Bank (3968) rose 12.4%, slightly better than forecasts, but asset quality deteriorated ----------------------------------------------------------- China Merchants Bank (CMB) reported its interim results for the six months ended 30 June 2013. In 1H13, net profit rose 12.4% YoY to RMb26.3bn, or RMB1.22/share. As at 30 June 2013, the bank’s loan balance went up 10.2% HoH, while deposit balance increased 10.5 % HoH. Loan-to-deposit ratio was 73.4%, slightly lower than the regulator’s upper limit of 75%. As China had allowed banks to raise their interest rate to 10% above PBoC’s benchmark rates, the funding costs of China’s banks increased. In 1H13, CMB’s net interest margin was 2.89%, down 22bps YoY. Net interest income was RMB47.4bn, up 8.7% YoY. The strong growth in net fee and commission income (RMB14.1bn, up 45.5% YoY) was the bright spot of the results. However, the bank’s asset quality deteriorated. Non-performing loan rose 28% HoH. Non-performing loan ratio went up 10bps to 0.71%. In the past few years, CMB had been raising provision coverage to lower its reported net profit; but in this set of interim results, the bank made use of the over-provision in the past by lowering the provision coverage ratio to 304.7%, down 47.1ppt HoH to reduce the provision charge in its profit & loss account. Still, provision charge rose 20% YoY to RMB4.96bn. As at 30 June 2013, CMB’s bad debt provision ratio was 2.17%, still lower than the 2.5% required by regulatory bodies, implying the bank will need to increase provision going forward. At the end of June this year, CMB’s overdue loans rose 38% HoH to RMB29.5bn, of which the loans overdue 1-3 years surged 90%. As asset quality is vital to banks, the prospects of CMB are not positive despite its better-than-expected interim net profit. Michael TAM, CFA.
Posted on: Mon, 19 Aug 2013 02:02:06 +0000
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