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Agricultural Bank of China Ltd., the first of the nation’s biggest lenders to report fourth-quarter earnings, posted an unexpected decline in profit as net fee income fell and bad-loan provisions swelled.
Profit was 27 billion yuan ($4.4 billion) in the three months ended Dec. 31, down from 28.3 billion yuan a year earlier, a Hong Kong exchange filing showed Tuesday. That trailed the 31.9 billion yuan average of 28 analysts’ estimates compiled by Bloomberg.
Chinese banks are poised to enter a “high-risk, low-return” period as the economy slows and the government deregulates interest rates, Bank of China Co. President Chen Siqing warned this month. Agricultural Bank’s first profit decline in three years partly reflected weakness in income from fees for services such as settlement and clearing, and investment banking advice.
“Bad loans will rise further,” Richard Cao, a Shenzhen-based analyst at Guotai Junan Securities HK Ltd., said by phone. “The economic outlook doesn’t look so great,” said Cao, adding that lenders’ profit growth may cool to between 1 percent and 3 percent this year.
Weaker Pace
Agricultural Bank’s full-year profit rose 7.9 percent in 2014 from a year earlier, the weakest pace since the bank listed in 2010 and about half the previous year’s rate, Tuesday’s statement for the Beijing-based lender showed. Net interest income gained 14 percent as the net interest margin, a measure of lending profitability, rose to 2.92 percent. Net fee and commission income fell 3.7 percent.
The bank set aside 68 billion yuan against potential loan losses last year, up 28 percent from 2013, as soured credit rose 42 percent, the earnings report showed. The bank’s nonperforming loan ratios rose to 1.82 percent in counties and 1.54 percent overall.
China’s banks are under pressure after the government set the lowest economic growth target in more than 15 years and the central bank said it was very likely to remove a ceiling on deposit rates this year, heightening competition for savings.
Agricultural Bank, which has 456 million retail customers, has benefited from lower deposit costs than rivals due to its extensive branch network in county areas. Still, its average cost of deposits rose to 1.85 percent in 2014 from 1.74 percent a year earlier as competition increased.
Shares of Agricultural Bank closed 0.8 percent lower in Hong Kong before the earnings announcement, extending this year’s decline to 3.1 percent.
Source: http://www.bloomberg.com/news/articles/2015-03-24/agricultural-bank-s-profit-unexpectedly-slides-as-economy-cools
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