China Merchants Bank Jumps on Profit Gain, Bad-Loan Controls

  • Net income climbs 7 percent, biggest gain in more than a year
  • Lender pares back shadow exposures that are ‘key concern’

China Merchants Bank Co. shares rose in Hong Kong to the highest in more than eight months after a jump in profit was accompanied by progress in controlling risks, including a paring back of the bank’s so-called shadow-lending book.

The stock was up 2 percent as of 11:11 a.m. local time on Friday, after earlier gaining as much as 3.1 percent.

China’s sixth-biggest bank by market value posted a 7.1 percent gain in net income in the second quarter, the biggest increase in more than a year, to 16.9 billion yuan ($2.5 billion) on Thursday.

Analysts and investors are watching this round of results from Chinese banks for signs of progress in their efforts to dispose of bad debt and limit the build-up of more soured credit. The nation’s official bad-loan ratio held at 1.75 percent in the second quarter, halting almost three years of increases.

The Shenzhen-based bank’s bad-loan ratio grew at a slower pace in the second quarter and its debt “receivables" -- a category that includes shadow-lending tools such as trust beneficiary rights and asset management plans -- fell 22 percent in the first six months of the year to 558 billion yuan.

The pull-back in receivables investment that has been a “key concern” for investors was a positive sign, along with indications that bad loans and credit costs were flattening, Wei Hou, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said in a note.

Merchants Bank boosted its bad-loan coverage ratio -- money set aside for future soured credit -- to 189 percent of existing bad loans at the end of June from 183 percent three months earlier.

— With assistance by Jun Luo

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