Shanghai Pudong Development Bank's first-half net profit rose by 30.83 percent to 1.60 billion yuan (US$200 million), or 0.41 yuan (5 US cents) per share, on the strength of a widening profit margin between loan and deposit rates.

 

Analysts expect the Shanghai-based bank to continue its growth momentum in the remainder of the year to reap an annual net profit of around 3.2 billion yuan (US$400 million).

 

The bank is the third-largest publicly traded lender on the Chinese mainland after Bank of China and China Merchants Bank.

 

Its first-half performance, announced last weekend, is within analysts' expectations.

 

"The bank performed well because of the widening margin between loan and deposit rates. Its interest margin is now over 4 percent according to my calculation and has the potential to rise further," said Li Yamin, a banking analyst with Shenyin Wanguo Securities.

 

China's central bank raised the benchmark one-year lending rate by 27 basis points from 5.58 percent to 5.85 percent in April this year to cool off the fast-growing economy, but left deposit rates unchanged.

 

Widening profit margins, however, have so far outweighed the effect of the lending rate hike in curbing loan demand for commercial lenders, analysts said.

 

In the first half of 2006, Pudong Development's total loans rose by 14.21 percent over the end of last year to reach 430.82 billion yuan (US$53.85 billion), the bank said in a statement filed to the Shanghai Stock Exchange.

 

Its non-performing loans ratio continued to drop to 1.82 percent by the end of the first half, below the industry average.

 

"A negative side of the bank's asset quality is the relatively high percentage of loans made to the real estate sector, where risk control is particularly called for," said Li.

 

Real estate loans accounted for around 11.41 percent of the bank's lending, it said in the statement.

 

Earlier in the year it was reported that Pudong Development had granted 32 questionable home loans totalling 126 million yuan (US$15.75 million). The bank confirmed the report in June, but said it had not incurred any losses as it had discovered the problem in time, taking in dozens of luxury Shimao Rivera Garden apartments as mortgages.

 

Like the other commercial lenders, Pudong Development is also expanding its intermediary business, which involves trading financial instruments such as insurance policies and corporate bills and generating income from commission fees.

 

Its intermediary business grew rapidly to as high as 95 percent to generate fees income of 420 million yuan (US$52.50 million), the bank said. But revenue generated from the business accounted for just 3 percent of the bank's total revenue income.

 

The lender's capital adequacy ratio continued to drop to 8.01 percent at the end of the first half, slightly over the required ratio of 8 percent.

 

Pudong Development plans to issue another 700 million shares by the end of the year to improve its capital, Shanghai Securities News quoted senior official Shen Si as saying.

 

Citibank, which holds a stake of about 4 percent in Pudong Development, has not yet expressed an intention to increase its holding, the paper quoted Shen as saying.

 

Shen was also quoted as saying the bank is considering co-operating with insurance companies in order to develop a comprehensive package of financial products and services.

 

In a separate development, the bank appointed Fu Jianhua, former board chairman of Bank of Shanghai, as its new president.

 

The bank's shares dropped by 0.32 percent yesterday to close at 9.23 yuan (US$1.15), while the benchmark Shanghai Composite Index dropped 2.19 percent to close at 1570.74 points.

 

(China Daily August 15, 2006)