On August 23, Cailian Press (reporter Sisitong Shi) "In the second half of the year, our bank will continue to lower the RMB reference interest rate and self-imposed upper limit with state-owned banks, and there is further room to reduce the cost of deposits." On August 23, Industrial Bank held a semi-annual performance briefing for 2024 and responded to the decline in interest margin, intermediate revenue, and real estate risks.

In terms of operating conditions, by the end of the first half of this year, the asset size of Industrial Bank further expanded to 10.35 trillion yuan, achieving revenue of 113.043 billion yuan and net income attributable to the mother of 43.049 billion yuan, with year-on-year growth rates of 1.80% and 0.86%, respectively, reversing the negative growth rate. However, behind the performance recovery, the bank's fee income and other intermediate business revenues have declined significantly, and the non-performing loan ratio in industries with high proportions of loans in the real estate sector and other industries has shown varying degrees of increase.

In response to this, the management of Industrial Bank stated that the significant decline in fee income is mainly affected by fluctuations in the capital market. In the second half of the year, the interest margin of the bank will continue to shrink, but it is expected to be better than the target set at the beginning of the year. At the same time, there is still certain pressure on the asset quality in the real estate sector, and it is expected that non-performing loans in the real estate industry may continue to be exposed in the second half of the year.

The interest rate spread continues to narrow, and there is further room to lower the cost of deposits.

Specifically, in the first half of this year, Industrial Bank achieved net interest income of 74.891 billion yuan, a year-on-year increase of 4.22%; non-interest net income of 38.152 billion yuan, a year-on-year decrease of 2.65%. Among them, fee and commission net income was 15.389 billion yuan, a decrease of 19.42%.

Industrial Bank believes that this is mainly influenced by the volatility of equity markets, new regulations on insurance, and the downward adjustment of management fee rates for actively managed equity funds.

Under the trend of overall fee reductions and concessions this year, the decline in intermediate revenues of listed banks is between 10% and 20%. Today, at the performance briefing, Lin Shu, the General Manager of the Finance Department of Industrial Bank, explained that the income from the bank's old products has already been reflected in the revenue, but due to the fluctuations in capital market business, 1.1 billion yuan of fee income was added back in the first half of this year, resulting in a decline of 19.42%.

"Excluding this factor, the year-on-year decrease in the fee income of our bank is 12%, which is at the median or preferred level among joint-stock banks," said Lin Shu.

Meanwhile, in terms of interest spread, the net interest margin of Industrial Bank in the first half of the year decreased by 9 basis points year-on-year, further dropping to 1.86%. However, Industrial Bank believes that the narrowing of its interest spread in the first half of the year compared to the first quarter is 1 basis point, which has performed better than the early-year expectations.

"Looking at the overall performance of the interest spread this year, we are still satisfied," said Lin Shu. This year, Industrial Bank pays special attention to the interest spread indicators. The cost control of deposits on the liability side has achieved phased results, with a deposit interest rate of 2.06% in the first half of the year, a year-on-year decrease of 20 basis points.

He further pointed out that looking at the whole year, Industrial Bank's asset-side yield will face greater pressure. However, on the liability side, in the second half of the year, it will continue to lower the RMB benchmark interest rates and self-regulatory upper limits with other state-owned banks, providing further room for reducing the cost of deposits. "Overall, in the second half of the year, Industrial Bank's interest spread will continue to narrow. However, from the perspective of the full-year forecast, it is expected to perform better than the budget target set at the beginning of the year and is likely to outperform the overall trend."

Asset quality is under pressure, and non-performing loans in the real estate industry may continue to be exposed in the second half of the year.

On the other hand, Caixin reporters noted that from the perspective of asset quality, although Industrial Bank's non-performing loan ratio and provision level have generally remained prudent, pressures have gradually emerged since the beginning of this year, with the non-performing loan ratios in multiple sectors with high loan proportions such as real estate showing an increase.

Data shows that as of the end of June, Industrial Bank's non-performing loan ratio was 1.08%, up 0.01 percentage points from the end of the previous year; the attention loan ratio was 1.73%, up 0.18 percentage points from the end of the previous year. At the same time, the provision coverage ratio was 237.82%, down 7.39 percentage points from the end of the previous year.

In response to this, Industrial Bank believes that since the beginning of this year, they have continued to advance risk prevention and control in key areas such as real estate, local government financing platforms, and retail credit, timely resolving and disposing of risk assets. However, due to factors such as macroeconomic structural transformation, real estate market adjustments, and strict identification of retail cross-defaults, its asset quality indicators weakened in the first half of the year.

In terms of industries, in the first half of this year, the non-performing loan ratio of the wholesale and retail trade industry of the bank improved, decreasing by 0.42 percentage points compared to the end of the previous year. However, there were also industries with a relatively high proportion of loans that experienced varying degrees of increase in non-performing loan ratios, such as the real estate industry, which saw an increase of 0.24 percentage points to 1.08%, the construction industry, which saw an increase of 0.19 percentage points to 1.51%, and the manufacturing industry, which saw an increase of 0.22 percentage points to 0.79%.

Speaking of the asset quality in the real estate sector, Lai Furong, the General Manager of the Risk Management Department of Industrial Bank, spoke frankly at the performance briefing that the sales volume and prices of real estate continued to decline in the first half of the year, and residents' expectations for long-term house prices did not show significant improvement. The overall real estate market is still at the bottoming stage, and there is still some pressure on the asset quality in the real estate sector.

He said that the effect of the current real estate policy will take some time to manifest. Before the transaction volume stabilizes, real estate companies will continue to face certain pressures due to the impact of sales proceeds on their cash flow. "We also expect non-performing loans in the real estate industry of our bank to increase in the second half of the year, and there may be some exposures," said Lai Furong.