"Investor Network" Ding Yingyi

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The reporting season in the bank has begun. On August 10th, Jiangsu Zhangjiagang Rural Commercial Bank Co., Ltd. (hereinafter referred to as "Zhangjiagang Bank", 002839.SZ) disclosed the first semi-annual report of A-share listed banks.

In the first half of this year, the bank achieved operating income of 2.353 billion yuan, an increase of 5.74% over the same period last year, and its net profit was 762 million yuan, an increase of 27.76% over the same period last year, significantly higher than the growth rate of 20.9% in the same period in 2021.

Up to now, more than a dozen listed banks have released their first-half results, KuaiBao, with double-digit growth in net profit, a general decline in non-performing loan ratio and a steady improvement in asset quality. Industry insiders predict that the revenue and net profit of listed banks in the first half of the year are expected to exceed expectations, and high-quality urban agricultural banks are expected to usher in investment opportunities.

Net profit increases by nearly 30%

According to the semi-annual report, in the first half of this year, Zhangjiagang Bank actively responded to the challenges of the interactive superposition of multiple factors, such as repeated epidemic, economic downturn and increased inclusive financial competition, and made a relatively significant improvement in terms of asset scale and operating performance.

As of the end of June, the bank's total assets rose 7.91 per cent from the beginning of the year to 177.599 billion yuan. Under the increase in credit, the total amount of loans reached 109.2 billion yuan, an increase of 9.43 billion yuan or 9.45 percent over the beginning of the year.

In terms of operating performance, the bank's income in the first half of the year was 2.353 billion yuan, an increase of 5.74% over the same period last year, and its net profit was 762 million yuan, an increase of 27.76% over the same period last year. Both revenue growth and net profit growth were higher than the same period in 2021.

Changes in revenue and net profit of Zhangjiagang Bank from year to year (unit: 100 million yuan)

Specifically, Zhangjiagang Bank's main income includes net interest income, fee and commission net income, investment income, fair value change income, exchange income, other business income, asset disposal income and other income.

The main business composition of Zhangjiagang Bank

In the first half of the year, the bank achieved net interest income of 1.895 billion yuan, an increase of 6.51% over the same period last year, while net income from fees and commissions was 33.598 million yuan, an increase of 83.94% over the same period last year. It is not difficult to see that the increase in the bank's revenue mainly comes from the increase in net interest income.

As the main source of income of Zhangjiagang Bank, the proportion of net interest income has remained above 79% for many years, of which the proportion of net interest income was 80.54% in mid-2022, slightly higher than the 79.96% at the beginning of the year.

In addition, according to the semi-annual report, the bank's net income from fees and commissions in the first half of 2022 was 34 million yuan, a decrease of 90 million yuan from the beginning of the year, but still a rapid year-on-year growth rate of 83.93%. It can be seen that the high growth rate of the bank's intermediary business is related to the low revenue base and still needs to be further improved.

Earlier, at a research meeting in June, the bank said it would start from changing marketing concepts, improving marketing strategies and strengthening channel cooperation to promote the growth of intermediary business revenue.

The net interest margin decreased significantly.

According to the official website, Zhangjiagang, which was officially established on November 27, 2001, is the first local joint-stock commercial bank to be restructured by rural credit cooperatives and officially listed on January 24, 2017, becoming the first batch of listed agricultural and commercial banks in the country.

By the end of June 2022, the bank had a total of 97 local branches, opened 3 branches in Nantong, Wuxi and Suzhou and 17 off-site branches, initiated the establishment of 2 holding village banks and invested in 6 agricultural commercial banks.

Performance growth increased at the same time, from the profitability indicators, Zhangjiagang Bank net interest margin and net interest margin decreased more significantly. At the end of the first half of the year, compared with the beginning of the year, both of the above two indicators decreased by 0.19 percentage points.

Profitability index of Zhangjiagang Bank

Wu Hongjun, a banker, said, "since 2022, regulatory measures have encouraged banks to reduce fees and profits, reducing financing costs in the real economy, and bank loan yields are generally under downward pressure."

In response, Zhangjiagang Bank has said that in response to regulatory requirements, the bank has reduced fees and benefits to the real economy, resulting in a reduction in asset-end returns, thus leading to the decline of the above indicators. "in the follow-up, we will still adhere to the positioning of supporting agriculture and supporting small, and increase the transformation of retail business."

Provision coverage exceeds 500%

The expansion of assets has accelerated the consumption of capital, and the relevant indicators of capital adequacy ratio of Zhangjiagang Bank have declined.

By the end of June, the bank's capital adequacy ratio, tier one capital adequacy ratio and core tier one capital adequacy ratio were 13.85%, 11.15% and 9.55% respectively, down 0.45%, 0.38% and 0.27% respectively from the end of last year.

Indicators related to capital adequacy of Zhangjiagang Bank

In terms of asset quality, Zhangjiagang Bank's non-performing loan ratio was 0.9%, down 0.05 percentage points from the beginning of the year and remained at a low level. At the same time, the bank's provision coverage increased by 57.96 percentage points to 533.31% compared with the beginning of the year.

In response, Everbright Securities said in the research report, "(Zhangjiagang Bank) still adheres to a prudent provision policy while the non-performing loan ratio remains low, creating conditions for sustained performance release and endogenous capital replenishment."

In general, the higher the provision coverage ratio, the stronger the ability of banks to resist risks. However, the former CBRC issued the Circular on adjusting the Regulatory requirements for loan loss reserves of Commercial Banks in March 2018, adjusting the regulatory requirements for provision coverage from 150% to 120%. 150%. If it exceeds the regulatory requirements by more than 2 times, it should be regarded as a tendency to hide profits, and the excess provision should be reduced to undistributed profits for distribution.

During the epidemic in 2020, the Bancassurance Regulatory Commission also issued a notice on the regulatory requirements for loan loss preparation of small and medium-sized commercial banks, which adjusted the regulatory requirements for loan loss preparation of small and medium-sized commercial banks in stages. The regulatory requirements for bank provision coverage were adjusted from 120% to 100%.

At the press conference of the State Council News Office on April 15 this year, relevant personnel of the Bancassurance Regulatory Commission said that the Bancassurance Regulatory Commission encouraged large banks with higher provisions and other high-quality listed banks to gradually return the actual provision coverage to a reasonable level and release more credit resources.

It is worth noting that Wind data show that as of August 10, Zhangjiagang Bank has received a total of 44 institutional surveys, mainly fund companies and investment institutions. From the disclosure of the "Summary of Investor Research", institutions pay more attention to the bank's credit.

As the first rural commercial bank restructured by rural credit cooperatives in China, how can Zhangjiagang Bank gradually control and reduce debt costs under the downward trend of asset-end return, so as to stabilize the net interest margin and improve the indicators of asset profit margin and capital profit margin? "Investor Network" will continue to follow. (produced by thinking Finance) ■