China Merchants Bank 2009 net profit declines 13.5%

By WANG BO (China Daily)
Updated: 2010-04-15 09:34
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BEIJING - China Merchants Bank Chairman Qin Xiao said a growing net interest margin is likely to buoy the lender's profitability this year after its earnings declined 13.5 percent in 2009.

"We saw the margin widen to 2.56 percent in the first quarter and expect it to grow gradually this year," the chairman said at a media briefing on Tuesday.

The interest margin measures the difference between the interest income generated by financial institutions and the amount of interest paid out to lenders.

If an anticipated rate hike by the central bank is taken into account, the outlook for margins this year is very upbeat, he added.

Media pundits have speculated for months that Chinese authorities could make a speedy move to cool the overheated economy. Interest rates are important to banks because they essentially determine the price at which money is bought and sold.

The country's sixth-largest lender by assets reported an unaudited net profit of 5.9 billion yuan ($864 million) for the first three months this year, up 40 percent from a year earlier, while its earnings for 2009 were 18.235 billion yuan, down 13.5 percent from a year ago, the bank said in a filing to the stock exchange on Monday.

"The 2009 result is much better than we expected, as the bank was tested by tight interest margin and increasing operational risk last year," Ma Weihua, president of the bank said.

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The Chinese government cut interest rates five times in 2008 in an effort to shore up the slowing economy amid the global financial crisis. While the lending rate kept shrinking, commercial lenders found it harder to profit even though they issued a record 9.59 trillion yuan in new loans last year.

However, the Shenzhen-based lender said there are signs its investment in the Hong Kong-based Wing Lung bank has paid off. Wing Lung, acquired by China Merchants Bank for 36.3 billion yuan in 2008, reported a net profit of HK$884 million in 2009 after posting a loss of HK$816 million a year earlier.

"The prospects for the integration between China Merchants Bank and Wing Lung are bright, as we are looking to expand cross-border businesses between the mainland and Hong Kong," Ma said.

China Merchants Bank's capital adequacy ratio, a key measure of financial health, stood at 11.4 percent as of the end of March this year, up from the 10.45 percent by the end of 2009, thanks to the 22 billion yuan it raised in a rights issue in Shanghai and Hong Kong last month. The regulatory minimum for Chinese medium-sized lenders is 10 percent.

"After the rights issue, we do not need to raise more funds from the market in the next three years," Qin said, stressing that the bank will be more conservative in using capital and enhance pricing power in the future.

The bank's non-performing loan ratio dropped to 0.74 percent as of the end of March, down from the 0.82 percent by the end of last year, while provisions for non-performing loans rose to 246.66 percent at the same time, well above the regulatory requirement of 150 percent.