Agricultural Bank Grinds Out 0.5% Profit Gain as Bad Loans Climb

Updated on
  • Bad-loan coverage ratio drops to lowest since late 2010
  • Capital-adequacy ratio declined to 12.81% in second quarter

Agricultural Bank of China Ltd., the nation’s third-largest lender by assets, posted a 0.5 percent profit gain in the second quarter as bad loans climbed.

Net income rose to 50.46 billion yuan ($7.6 billion) in the three months through June, according to a statement released by the Beijing-based bank on Friday. That compared with the 50.1 billion-yuan median estimate of four analysts in a Bloomberg survey.

The bank pared back its bad-loan buffer, setting aside 18.6 billion yuan in provisions, down 3 percent from a year earlier.

While Xu Yiming, the chief financial officer of China Construction Bank Corp., told a briefing in Hong Kong on Friday that his bank was seeing less pressure from bad loans, Agricultural Bank Chairman Zhou Mubing told reporters in Beijing that the opposite was true for his organization.

Agricultural Bank reported that its nonperforming-debt ratio edged up to 2.4 percent from 2.39 percent in the previous three months.

Construction Bank and Bank of Communications Co. -- two of the nation’s other big banks -- both earlier reported that their bad-loan ratios held steady in the second quarter.

Key numbers for Agricultural Bank included:

  • Bad-loan provision ratio fell to 177.7 percent, lowest level in more than five years, from 180.4 percent in previous quarter
  • Nonperforming loans rose by 3.8 billion yuan in the quarter to 225.4 billion yuan
  • Capital-adequacy ratio fell to 12.81 percent from 13.11 percent in March
  • Net interest margin narrowed to 2.31 percent in first half from 2.78 percent a year earlier

Chinese banks extended 7.5 trillion yuan of new local-currency loans in the first six months of this year, an increase of 14 percent from a year earlier. Of that credit, more than 30 percent was for low-risk home mortgages.

Agricultural Bank doled out 311 billion yuan of new mortgage loans in the first half, about 160 percent more than the amount it gave to corporate borrowers, according to the lender’s statement. The bad-loan ratio for mortgage lending was 0.4 percent, compared with 3.39 percent for corporate loans.

China’s tools for tackling leverage and a build-up of bad credit include debt swaps for local governments, plans for banks to swap loans for equity stakes in companies, and a trial of NPL-backed securities. Agricultural Bank last month sold securities backed by 10.7 billion yuan of nonperforming loans.