trending Market Intelligence /marketintelligence/en/news-insights/trending/VuvS-T-gzNspSaQvpfdCZA2 content esgSubNav
In This List

Huishang Bank sees H2 profitability to improve on strong regional economy

Podcast

Street Talk Episode 87

Blog

A New Dawn for European Bank M&A Top 5 Trends

Blog

Insight Weekly: US banks' loan growth; record share buybacks; utility M&A outlook

Blog

Banking Essentials Newsletter 2021: December Edition


Huishang Bank sees H2 profitability to improve on strong regional economy

China's Huishang Bank Corp. Ltd. expects profitability to improve further in the second half, after the midsize city commercial lender posted a year-over-year rise in net interest margin in the first half due to its focus on an economically robust province.

Near 90% of the lender's end-June loan book and 64.44% of its first-half pretax profit originated from Anhui province, according to its half-year report released Aug. 28. The province's GDP grew by 8% in the first half from a year ago, beating the national average of 6.3%.

As of end-June, Huishang's net interest margin rose to 2.56% from 2.39% a year ago, while margins were falling for many other Chinese banks amid slowing economic growth and escalating trade frictions between China and the U.S.

Chairman Wu Xuemin said at a first-half earnings briefing in Hong Kong Aug. 30 that the bank expected to benefit from the strong economic growth in Anhui province as well as the ongoing Yangtze River Delta integration, which covers Shanghai as well as provinces of Anhui, Jiangsu and Zhejiang.

The bank had 430 branches in Anhui and 12 branches in Jiangsu as of end-June.

Li Dawei, head of finance department, said at the same briefing the robust regional economy supported loan demand and asset quality in the first half.

Its total outstanding loans grew by 13.83% to 434.56 billion Chinese yuan in the first half from 381.77 billion yuan as of Dec. 31, 2018.

"In the second half, we plan to continue to invest resources to support loan growth and to serve the real economy," said Li.

In the first half, the lender's nonperforming loan ratio dropped to 1.03% from 1.04% as of Dec. 31, 2018. The ratio stood at 1.02% as of June 30, 2018.

Huishang's asset quality was better than many other city commercial banks. In the first half, the average nonperforming loan ratio for the country's city commercial banks rose to 2.3%, the highest level for this group of lenders since the fourth quarter of 2008, according to data from the central bank.

Wu added the nonperforming loan ratio of its existing loans should have bottomed. "Looking ahead, we will focus on risk management of new loans [to improve nonperforming loan ratios]," said Wu.

He also added that the bank expected "some pressure" from the introduction of the loan prime rates, which are new benchmark rates that aim to reduce borrowing costs for the real economy.

The loan prime rates, which will be adjusted once a month, were set at 4.25% for one-year loans and 4.85% for five-year loans on Aug. 20. The new rates are lower than previous benchmark lending rate which has remained at 4.35% since mid-2015.

"We plan to adjust loan structure in terms of loan duration in face of increasing volatility in the loan prime rates," said Li.

Chinese lenders are reportedly required to price at least 30% of new loans with the lower loan prime rates by end-September, as well as on all new mortgages from Oct. 8.

As of Aug. 29, US$1 was equivalent to 7.14 Chinese yuan.