Agricultural Bank of China Ltd. (601288), the nation’s fourth-largest lender, rose the most in six weeks in Hong Kong trading after posting a bigger-than-estimated increase in fourth-quarter profit as loan margins widened.
The stock gained 2.7 percent to close at HK$4.24 as net income jumped 83 percent to 24.7 billion yuan ($3.8 billion) in the quarter from a year earlier. Profit beat the 21 billion yuan average estimate of 17 analysts surveyed by Bloomberg.
Agricultural Bank, which in August completed a record $22.1 billion initial public offering, boosted lending 20 percent last year even as China’s government stepped up efforts to contain credit growth. The company’s net interest margin widened by 19 basis points in the three months ended Dec. 31 to 2.77 percent, according to Credit Suisse Group AG.
“As a result of the tight monetary environment in China, we expect ABC will continue to benefit from expanding net interest margins in 2011,” Michael Werner, a Hong Kong-based analyst at Sanford C. Bernstein & Co., wrote in a note today.
Agricultural Bank’s full-year profit climbed 46 percent to 94.9 billion yuan after the July IPO bolstered capital, allowing it to lend more.
Net interest income rose 33 percent to 242 billion yuan last year, while income from fee-based services gained 29 percent to 46.13 billion yuan. Net interest margin, a measure of lending profitability, expanded 29 basis points to 2.57 percent last year. A basis point is 0.01 percentage point.
President Zhang Yun said in Beijing today that he’s optimistic about the 2011 growth outlook because greater pricing power and higher fee income will make up for slower lending.
Set up in 1951 by Mao Zedong to finance rural cooperatives, Agricultural Bank was the first Chinese commercial lender established during Communist rule. It had 350 million customers and 23,486 outlets at the end of December in China, more than any other Chinese bank.
More than half of Agricultural Bank’s outlets are in the countryside. Those operations accounted for about 30 percent of total pretax profit last year. Loan growth and margins at rural operations exceeded those at Agricultural Bank’s urban business, the lender said yesterday in a statement.
Even so, Agricultural Bank has the smallest ratio of “buy” recommendations from analysts among the nation’s five largest state-owned banks, according to data compiled by Bloomberg, on concern that a crackdown on loans to local governments will weaken its capital.
Lower Capital Adequacy
China’s requirement that banks assign risk weightings of as much as 300 percent for loans to local governments that aren’t fully backed by cash flow will reduce the banking industry’s capital adequacy ratio by 0.76 percentage point, according to an estimate from BoCom International Ltd. Agricultural Bank and China Construction Bank Corp. are among the most affected, according to BoCom analyst Li Shanshan.
Agricultural Bank had 100 billion yuan of non-performing loans as of Dec. 31, accounting for 2.03 percent of total credits, according to the statement. That was above the 1.14 percent average among local banks, data from the banking regulator show.
Stress tests carried out by the bank show that a drop of at least 50 percent in property prices would boost the bad-debt ratio in its mortgage loan portfolio by about 1 percentage point, Executive Vice President Guo Haoda said in Hong Kong today.
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