(Yicai) Aug. 24 -- Ping An Bank, the banking unit of Chinese insurance giant Ping An Insurance, reported a 15 percent jump in profit for the first half from a year ago despite a dip in revenue.

Net profit came to CNY25.4 billion (USD3.5 billion) in the six months ended June 30, the Shenzhen-based lender’s earnings showed yesterday. It attributed the higher profit mainly to better cost control, as fall in asset impairment losses, and the recovery of more bad loans.

The bank cut outlays on management fees by 3.7 percent to CNY23.4 billion, trimmed asset impairment losses by 16.7 percent to CNY32.4 billion and managed to recover CNY20.2 billion worth of non-performing assets that had been written off, the report said.

But operating income tumbled 3.7 percent to CNY88.6 billion (USD12.2 billion). This was largely due to a drop in non-interest income, or fee-based revenue, which plunged 7.1 percent in the first half to CNY26 billion.

Earnings from interest also sank 2.2 percent to CNY62.6 billion (USD8.6 billion) as lower interest rates squeezed its margin 0.2 percentage point to 2.5 percent.

The main challenge for the banks this year is the lowering of the country’s benchmark loan prime rate to boost demand for financing in the real economy, Wang Liang, president of China Merchants Bank, said in March. 

This meant that the net interest margin, a key measure of profitability, on Ping An Bank’s loans and advances slumped 35 basis points year on year to 5.65 percent, with that on business loans up 19 points to 4.05 percent but that on personal loans plunging 63 points to 6.91 percent.

Shares of Ping An Bank [SHE: 000001] fell 1.1 percent to close at CNY11.13 (USD1.52) each in Shanghai today, after swinging between a loss of 1.8 percent and a gain of 0.6 percent. The stock is down more than 15 percent since the end of last year.

Industry Pressures

Ping An Bank is not the only lender under pressure. China Construction Bank’s net interest margin fell by 30 points to 1.79 percent from a year ago, shaving 1.7 percent off net interest income at CNY312.2 billion, according to its semi-annual report released yesterday.

But Ping An Bank continued to extend more loans in the first half. Its balance of business loans surged 7 percent to CNY1.3 trillion (USD188.1 billion), while personal loans expanded at a much slower rate, edging up 1 percent to CNY2 trillion.

Some individual customers are still having problems repaying debt, despite the uptick in the economy, Ping An Bank said. As a result, the lender has had to write off more retail assets and make loss provisions, resulting in a slump in profit from its retail finance business.

The bank’s wholesale business outperformed its retail finance business, accounting for almost 40 percent of profit compared with 34 percent. The wholesale business’ net profit soared 87 percent to CNY10.1 billion (USD1.3 billion), while that of its retail finance business slumped 22 percent to CNY8.7 billion.

Ping An Bank’s asset quality continued to improve in the first half. Its dud loan ratio dipped 0.02 percentage point at the end of June from the end of last year to 1.03 percent, the report said. The provision coverage ratio edged up 1.2 point to 291.5 percent. And its annualized weighted average return on equity was 12.6 percent, a gain of 0.4 point from a year ago.

Editor: Kim Taylor