Financial Services Association, October 30 (Reporter Gao Ping) The three quarterly reports of listed banks have been intensively disclosed. Agricultural Bank's financial data for the first three quarters was also released this evening. According to the data, the Agricultural Bank achieved net profit of 215.3 billion yuan in the first three quarters, an increase of 3.6% over the previous year. Operating income was 540.2 billion yuan, up 1.29% year on year, including net interest income of 437.8 billion yuan, up 1.0% year on year. However, net revenue from fees and commissions was 61.653 billion yuan, down 7.65% year over year. At the 2024 third quarter results briefing held on the same day, relevant officials of the Agricultural Bank responded to hot market concerns.

Results will reveal progress in “capital injection”: research is ongoing to validate core Tier 1 capital replenishment programs

According to the three-quarter report, as of September 30, 2024, Agricultural Bank's total assets were 4,3553.293 billion yuan, an increase of 3680.304 billion yuan over the end of the previous year, an increase of 9.23%. The total amount of loans and advances issued was 24688.299 billion yuan, an increase of 2073.678 billion yuan over the end of the previous year, an increase of 9.17%. In terms of capital replenishment, as of the end of the reporting period, the capital adequacy ratio of Agricultural Bank was 18.05%, of which the core Tier 1 capital adequacy ratio was 11.42%.

Recently, the regulations stated that the core Tier 1 capital of the six large commercial banks will be strengthened and implemented in an orderly manner in installments and batches in accordance with the overall promotion. How is the Agricultural Bank currently progressing? Today, at the performance briefing, the relevant person in charge of the Agricultural Bank said that on the issue of capital replenishment, the Agricultural Bank will push forward the implementation of capital supplementation related work in accordance with the overall arrangements of the supervisory authorities and shareholder units. “Currently, we are actively communicating with relevant departments and studying and verifying plans to supplement core level 1 capital.”

According to information, as of the end of June 2024, the average core Tier 1 capital adequacy ratio of the six large state-owned banks was 12.3%. Vice Minister of Finance Liao Min said at the press conference of the State Information Office on October 12 that the Ministry of Finance will adhere to the principles of marketization and rule of law, raise funds through channels such as issuing special treasury bonds according to the idea of integrated promotion, installment in batches, and implement a single policy to steadily and orderly push large state-owned commercial banks to further increase their core capital. Meanwhile, Liao Min revealed that the work has begun and is awaiting submission of capital replenishment plans from various banks.

Furthermore, in terms of asset quality, the Agricultural Bank “increased and decreased”. The three-quarter report shows that by the end of the third quarter, Agricultural Bank's non-performing loan balance was 324.836 billion yuan, an increase of 24.076 billion yuan over the end of the previous year; the non-performing loan ratio was 1.32%, down 0.01 percentage points from the end of the previous year. Also, the interest loan ratio was 1.42%, the same as at the end of the previous year. The overdue non-compliance ratio was 87.61%, and the provision coverage rate was 302.36%.

Interest spreads for the third quarter were the same as in the first half of the year, and net interest spreads are expected to remain under pressure next year

Net interest spreads are one of the common concerns of the industry. The three-quarter report shows that the Agricultural Bank's net interest spread was 1.45%, the same as in the first half of the year. Regarding the net interest spread, the relevant person in charge of the Agricultural Bank said that it is expected that the net interest spread of the Agricultural Bank will remain basically stable this year.

The person in charge mentioned above said that on the asset side, considering the October stock mortgage interest rate adjustment and the further reduction in LPR, loan interest rates will still face downward pressure. Combined with the overall low interest rate in the bond market, it is expected that the interest yield on the asset side will still be under pressure. Also, on the debt side, the pressure on debt costs will continue to ease with the impact of the reduction in interest rates on RMB deposits this year. Most of the impact of interest rate adjustments on both ends of comprehensive deposits and loans can be offset by each other; the overall impact on net interest spreads this year is relatively small.

Judging from next year's changes, the relevant person in charge of the Agricultural Bank further stated that under the macroeconomic policies of financial concessionary entities, it is expected that the Agricultural Bank's net interest spread will still be under pressure, and the trend of change is basically consistent with that of the same industry. It is worth mentioning that as of press release, judging from bank data that has already been disclosed for the three quarterly reports, compared to the interim report, the net interest margin has mostly narrowed. Since September, the central bank has announced and implemented a package of easing policies one after another. While the market is concerned about the effects of interest rate cuts on macroeconomic stimulus, it is also paying more attention to the impact of lowering policy interest rates on banks.

How do you see the impact of lower interest rates on the banking industry? Recently, in the macroeconomic policy report for the third quarter of 2024 released by the China Financial Forty Forum, Zhang Bin, a senior researcher at the China Financial Forty Forum and deputy director of the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, focused on analyzing the impact of lowering policy interest rates on the banking system. Zhang Bin believes that interest spreads do not constitute a necessary condition for policy interest rate adjustments, so what should be reduced must still be reduced.

“China drastically lowered policy interest rates in 2015. Although the policy guidance interest rate for deposits and loans was not narrowed, commercial bank loan and deposit interest rates both fell significantly. The decline in loan interest rates was greater than the decline in deposit interest rates, and commercial bank interest spreads narrowed by 60 basis points.” According to the above report, commercial banks' net interest spreads are in the opposite direction of “policy net interest spreads.” It shows that in addition to the impact of policy interest rate adjustments, the banking industry's spontaneous competitiveness in the market has a more prominent impact on net interest spreads.

Zhang Bin believes that regardless of whether the central bank adjusts policy interest rates, commercial banks' profits will change as the economic cycle changes. If policy interest rates are not fully adjusted to help the economy overcome insufficient demand, commercial banks' interest spreads and profits will face serious challenges. Commercial banks will benefit if policy interest rates are fully adjusted to help the economy get out of the situation of insufficient demand as soon as possible. If policy interest rates are lowered quickly and sufficiently, the short-term financial asset valuation effect of commercial banks will be more significant, while losses caused by narrowing interest spreads will gradually become apparent, which is more beneficial to commercial banks.