During the first half of the year, total revenue and net profit grew by 4.83% and 2.02% year-on-year, respectively. With a notable decline in liability costs, a substantial reduction in interest expenses, and a return to positive growth in net interest income, China Merchants Bank Co.,Ltd. (600036.SH, 03968.HK) has steered its revenue and net profit onto a path of positive expansion this half-year.
The bank's semi-annual report, disclosed on the evening of August 28, revealed that interest income for the first six months stood at RMB 172.73 billion, down 2.42% year-on-year. However, interest expenses fell sharply by 14.4%, propelling net interest income up 5.6% compared to the same period last year. Combined with a narrowing decline in net interest margin, the bank's operating revenue and net profit for the first half both climbed by 4.83% and 2.02%, respectively.
For a long time, retail banking has served as the primary engine of revenue and profit for CM BANK. Yet, in the first half of this year, its retail pre-tax profit was surpassed by its corporate banking segment. The semi-annual report indicates that corporate banking revenue and pre-tax profit increased by over RMB 5 billion and RMB 8 billion, respectively, marking growth of more than 7%. In contrast, retail interest income contracted by over RMB 6 billion, a decline of approximately 8.5%, while pre-tax profit fell by more than 17%.
Net Interest and Non-Interest Income Return to Growth
As of the end of June, China Merchants Bank Co.,Ltd. reported total assets of RMB 13.78 trillion, up 5.47% from the end of last year. Deposit and loan balances reached RMB 10.16 trillion and RMB 7.45 trillion, respectively, reflecting increases of 3.32% and 2.69% compared to the end of 2023.
In the first half, the bank generated operating revenue of RMB 178.181 billion, up 4.83% year-on-year, and net profit of RMB 76.44 billion, up 2.02%, showing clear signs of improvement compared to both the first half and full year of last year. During the first half of 2023, the bank's revenue and net profit had declined by 1.72% and grown by merely 0.25%, respectively, with full-year growth rates of only 0.01% and 1.21%.
The improvement in operational metrics was driven by the resumption of growth in both net interest and non-interest income. Non-interest income showed signs of recovery, with net non-interest income reaching RMB 66.15 billion, up 3.56% year-on-year, a sharp turnaround from the 6.73% decline seen in the first half of 2023.
Within non-interest income, net fee and commission income totaled RMB 39.85 billion, a 5.99% increase year-on-year. As the primary source of fee income, wealth management-related revenues hit RMB 16.19 billion, surging 26.53%. Agency businesses, including wealth management products and mutual funds, saw income rises of 10.56% and 61.4%, respectively. Other net income, including exchange gains and bond investment returns, posted a slight overall increase. Notably, fair value gains jumped by RMB 9.4 billion from RMB 4.58 billion in the same period last year, while exchange gains grew by more than 28%. Meanwhile, investment income of RMB 12.811 billion declined by 41.49%.
The more significant driver of growth came from interest income. Interest income for the first half totaled RMB 172.73 billion, down 2.42% year-on-year, with loan interest income at RMB 111.947 billion, a 5.99% decrease. Nonetheless, net interest income of RMB 112.02 billion still grew by 5.6%.
The robust growth in net interest income was partly aided by a moderating decline in net interest margin. The bank's net interest spread and net interest margin stood at 1.77% and 1.83%, respectively, down 0.02 and 0.05 percentage points year-on-year, and 0.01 and 0.04 percentage points from the end of last year, indicating a slight narrowing in the rate of decline. In the second quarter, the net interest margin was 1.82%, down 1 basis point from the first quarter.
A more crucial factor was the significant drop in interest expenses. Due to a lower cost of interest-bearing liabilities, the bank's interest expenses for the first six months totaled RMB 60.71 billion, down 14.41% year-on-year. Deposit interest expenses fell even more sharply, by 16.16%, to RMB 47.387 billion. Additionally, investment interest income grew, reaching RMB 47.52 billion, up 5.77% year-on-year, driven by expanded bond investment scale. Interest income from placements with banks also rose 5.51% to RMB 8.878 billion.
Looking ahead, CM BANK anticipates that the decline in net interest margin will continue to narrow in the second half of the year. While challenges in effective asset deployment persist and may exert downward pressure on asset yields, deposit term-deposit trends are showing signs of stabilization. The bank's high base of demand deposits, however, makes further improvement challenging. Nevertheless, the sustained recovery of the domestic economy is expected to boost effective credit demand, and with loan pricing gradually stabilizing and deposit rate liberalization deepening, the external environment appears favorable for improving the net interest margin.
Corporate Pre-Tax Profit Surpasses Retail
While CM BANK has long held a leading position in retail banking, with retail revenue contributions consistently exceeding corporate banking, the first half of this year saw retail pre-tax profit overtaken by corporate banking.
As of the end of June, the bank's retail loan balance stood at RMB 3.61 trillion, down 1.11% from the end of last year, accounting for 51.04% of total loans, a decrease of 1.88 percentage points. Excluding credit cards, retail loans reached RMB 2.72 trillion, up 0.29% from the end of 2023.
Despite a modest increase in revenue, the bank's retail pre-tax profit dropped significantly. In the first half, retail banking operating revenue was RMB 96.82 billion, up 0.65% year-on-year, representing 54.34% of total operating revenue, down 2.25 percentage points. Pre-tax profit from retail totaled RMB 42.88 billion, a decline of 17.58%, making up 47.27% of total pre-tax profit, down 11.26 percentage points.
In contrast, corporate banking saw faster growth in both revenue and pre-tax profit. By the end of June, corporate deposit and loan balances were RMB 5.35 trillion and RMB 3.2 trillion, respectively, up 3.09% and 9.27% from the end of last year. Corporate operating revenue reached approximately RMB 75.5 billion, an increase of RMB 5.2 billion, or 7.42%, while pre-tax profit climbed to RMB 45.7 billion, up RMB 8 billion, or 23.33%.
The revenue structures of the two segments showed similar trends. Corporate loan interest income totaled RMB 43.35 billion, a slight decrease of about RMB 70 million year-on-year, while retail interest income fell by approximately RMB 6.3 billion, or 8.5%, to RMB 67.28 billion.
Asset quality followed a similar pattern. As of the end of June, the bank's corporate non-performing loan (NPL) balance was RMB 27.419 billion, with an NPL ratio of 0.78%, a reduction of RMB 1.203 billion and 0.11 percentage points from the end of last year. Meanwhile, retail NPLs increased by RMB 3.248 billion to RMB 42.832 billion, with the NPL ratio rising 0.1 percentage points to 1.16%.
Newly formed corporate NPLs totaled RMB 2.51 billion, up RMB 289 million year-on-year. For retail loans excluding credit cards, new NPLs reached RMB 10.97 billion, an increase of RMB 247 million, while credit card NPLs newly formed at RMB 23.698 billion, up RMB 3.929 billion year-on-year.
However, the bank's retail customer assets under management (AUM) reached RMB 18.44 trillion by the end of the first half, up 7.96% from the end of last year. Retail wealth management fee and commission income grew 24.81% year-on-year.
The semi-annual report also showed that the bank's total NPL balance was RMB 70.251 billion as of end-June, with an NPL ratio of 0.94%, an increase of about RMB 2.05 billion from the end of last year but flat in ratio terms. Newly formed NPLs totaled RMB 37.186 billion, up RMB 4.465 billion year-on-year. The annualized NPL formation rate was 1.06%, up 0.08 percentage points, while the provision coverage ratio stood at 385.1%, down 6.69 percentage points from the end of last year.
Overdue loans totaled RMB 97.34 billion, an increase of RMB 6.702 billion from the end of last year, with the overdue loan ratio at 1.31%, up 0.06 percentage points. The ratio of NPLs to loans overdue by more than 90 days was 1.23%.
Furthermore, as of the end of June, the bank's real estate-related business balance with credit risk totaled RMB 359.209 billion, up 1.48% from the end of last year, while the balance of business without credit risk was RMB 170.713 billion, down 4.26%. Real estate loans amounted to RMB 296.73 billion, an increase of RMB 13.625 billion from the end of last year, with the real estate NPL ratio at 4.27%, down 0.37 percentage points.
Comments