Source : SCMP
Jane Cai in Beijing Jun 19, 2009
China Development Bank, a former policy lender in transition to a commercial bank, posted a 28 per cent decline in net profit last year as asset impairments surged.
Net income fell to 20.76 billion yuan (HK$23.54 billion) from 28.78 billion yuan a year earlier, while the non-performing loan ratio rose to 0.96 per cent from 0.59 per cent, the Beijing-based lender said in its annual report yesterday.
"In 2008, we effectively offset the impact of the financial crisis and maintained a healthy profit level. We will continue to focus on medium to long-term financing and investment this year," said bank governor Jiang Chaoliang.
Analysts said the bank's performance would probably improve this year as the economy was likely to bottom out. However, loan defaults might pose a threat in the next few years because the lender was widely involved in economic stimulus projects initiated by struggling local governments. The bank does not take deposits and gets funding from bond sales to extend loans to mainland public works.
The Ministry of Finance owns 51.3 per cent of the bank, while Central Huijin Investment, a unit of the mainland's sovereign wealth fund, holds the rest, after injecting US$20 billion in December 2007.
The bank said its larger exposure to the US dollar after the central government's injection resulted in a "sharp increase" in foreign-exchange loss last year, a rise of 64 per cent to 24.62 billion yuan.
Net interest income, accounting for 99 per cent of business revenue, rose 20 per cent to 83.9 billion yuan, although net interest margin contracted 29 basis points to 2.6 per cent.
Asset impairment losses surged 326 per cent to 45.78 billion yuan as the lender "took a cautious stance" because more loan defaults and investment losses were expected in the economic downturn.
The bank holds a 3.1 per cent stake in British bank Barclays. It is also the backbone of the country's outbound investment strategy, providing financing for the overseas expansion of state-owned enterprises.
"Loan quality will not be a big problem this year," said Samuel Chen, an analyst with JP Morgan.
The bank's outstanding loans stood at 2.9 trillion yuan at the end of last year, up 28 per cent from a year earlier. About 49 per cent of its loans went to eastern provinces, 24 per cent to western areas and the rest to the central provinces.
Nearly 65 per cent of the loans were granted to fund public facilities, road construction and power industry, the bank said.
Loan defaults are the biggest threat to mainland banks, which face "a choppy 2009" after economic growth slowed to 6.1 per cent in the first quarter, according to Fitch Ratings.
However, analysts believe the non-performing-loan ratio will not deteriorate substantially in the short term, since loan expansion is continuing and many loans are long-term.
The non-performing loan ratio of mainland commercial banks was 2.4 per cent at the end of last year.
