Minsheng beats expectations

SHANGHAI - China Minsheng Banking Corp (CMBC), listed on both the Shanghai and Hong Kong exchanges, posted a 57 percent jump in first-half net income, exceeding market expectations.

Analysts attributed the performance to higher loan yields and a further increase in income from fee-based services, derived mainly from a traditional focus on small and medium-sized enterprises (SMEs).

Net income rose to 13.9 billion yuan ($2.2 billion) from 8.87 billion yuan a year earlier, the Beijing-based bank said in a statement on Tuesday. Earnings per share stood at 0.52 yuan, up from 0.19 yuan.

Net interest income, or the revenue from borrowers minus interest paid to depositors, was up nearly 40 percent to 25.9 billion yuan. The net interest margin, a key indicator of lending profitability, widened to 3 percent from about 2.9 percent.

The bank said that net non-interest income rose 89 percent to 9.31 billion yuan, aided by higher trust fees, credit commitment-related fees and settlement fees.

The results beat forecasts, as the second quarter witnessed a 20 percent surge in net interest income, said Richard Xu, an analyst at Goldman Sachs Gao Hua Securities Co Ltd.

Earnings growth was driven by a 9 percent earning assets increase quarter-on-quarter, and the continued net interest margin expansion was aided by higher loan yields, benefiting from the continued increase in SME loans, Xu wrote in a research note.

"The bank's interim results demonstrate its solid fundamentals," especially the development of the SME business, said a report from China International Capital Corp Ltd.

"As the front runner in micro-enterprise lending, Minsheng is definitely better-positioned with a stronger customer base and more comprehensive risk control methods, which will contribute to a continuous re-rating of the stock," the report said.

Fee income increased 68 percent quarter-on-quarter after jumping 61 percent in the first three months, Xu said.

"The second-quarter performance is surprisingly good. Profitability is so outstanding that we worry it may have grown too fast," a Hong Kong-based banking analyst, who declined to be identified, told China Daily.

Loans to SMEs usually carry higher interest rates to compensate for the greater risks. But the bank is widely considered by analysts to have maintained relatively tight control of its cost-income ratio, which declined to 41 percent for the first half of 2011, down 6 percentage points from a year earlier.

Asset quality remained stable, as the non-performing loan (NPL) ratio was reduced to 0.63 percent from 0.69 percent, with increased NPL coverage (the ratio of allowances for probable losses on NPLs to total NPLs) of 334 percent compared with about 270 percent.

The bank's growth is "very robust" compared with other small to medium-sized banks, such as China Merchants Bank Co Ltd, which posted a 40 percent profit increase in the first half, said Sheng Nan, an analyst with UOB-Kay Hian Investment Consulting (Shanghai) Co Ltd.

"As liquidity further tightens in the second quarter, private companies will have an even greater problem securing much-needed financing from State-owned banks," Sheng said. This, he said, "will give Minsheng more room to boost its assets and profits".

In a bid to ensure stability in the banking sector, the China Banking Regulatory Commission placed a lid on lenders' loan-to-deposit ratio of 75 percent, with monthly assessments having started in June 2011.

While the move might narrow the interest margins of smaller banks, Minsheng successfully transferred these costs to borrowers - SMEs in need of capital - and sustained growth, Shen Yan, a banking specialist at CCID Consulting Co Ltd said.

"As inflation continues to rise capital holders are looking for appropriate financial services and that is where joint-stock banks' non-interest income derives from," Shen said.

Shi Yuzhu, chairman and chief executive officer of Giant Interactive Group Inc, is said to be likely to further increase his holdings in the bank, based on the interim report.

Shanghai Giant Lifetech Co Ltd, under the wing of Shi, held 800 million A shares in the Shanghai-listed lender as of July 15, compared with 147 million shares at the beginning of the year, taking its holding in the lender to 3.54 percent.

The stock rose 0.53 percent to close at 5.7 yuan in Shanghai after the earnings announcement. The H shares were up 1.27 percent at HK$6.37 (82 US cents) before trading ended on Wednesday.

Li Tao in Hong Kong contributed to this story.