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Cailianshe News, August 23 (Reporter Shi Sitong)"In the second half of the year, our bank will continue to lower the RMB listed interest rate and self-discipline ceiling together with state-owned banks, and there is room for further reduction in the cost of deposits." On August 23, Industrial Bank held a performance briefing for the 2024 semi-annual report to respond to aspects such as interest rate spreads, declining non-interest income, and real estate risks.

From the perspective of business performance, at the end of the first half of this year, the asset scale of Industrial Bank further expanded to 10.35 trillion yuan, while achieving revenue of 113.043 billion yuan and net profit attributable to the parent of 43.049 billion yuan, up 1.80% and 0.86% year-on-year respectively, both turning negative into positive growth. However, behind the recovery of performance, the bank's intermediary business income such as handling fees has declined significantly, and the non-performing rates of multiple industries with a relatively high proportion of loans, such as real estate, have risen to varying degrees.

In response, the management of Industrial Bank said that the sharp decline in fee income was mainly affected by factors such as capital market fluctuations. The bank's interest margin will narrow in the second half of the year, but it is expected to be better than the target set at the beginning of the year. At the same time, there is still some pressure on the quality of assets in the real estate sector, and it is expected that the non-performing assets 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 room for further reduction in deposit costs

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

In this regard, Industrial Bank believes that it is mainly affected by factors such as equity market fluctuations, new insurance regulations, and reductions in management fees for active equity funds.

"Under the general trend of reducing fees and giving profits this year, the decline in non-interest income of listed banks has ranged from 10% to 20%." At today's performance briefing, Lin Shu, general manager of Industrial Bank's Planning and Finance Department, explained when talking about non-interest income that the earnings from Industrial Bank's previous old products had been reflected in revenue, but due to fluctuations in capital market business, 1.1 billion yuan of fee income was charged back in the first half of this year, resulting in a decline of 19.42%.

"Excluding this factor, our bank's fee income fell by 12% year-on-year, which is also at the median or preferred level among joint-stock banks," said Lin Shu.

At the same time, in terms of interest rate spread, the net interest margin of Industrial Bank in the first half of the year fell by 9 basis points year-on-year to 1.86%. However, in the view of Industrial Bank, the decline in its interest rate spread in the first half of the year narrowed by 1 basis point compared with the first quarter, which was better than expected at the beginning of the year.

"From the perspective of the overall interest rate spread performance this year, we are still satisfied." Lin Shu said that this year Industrial Bank paid special attention to the interest rate spread indicator, among which the deposit cost control on the liability side achieved phased results. The deposit interest rate in the first half of the year was 2.06%, a year-on-year decrease of 20 basis points.

He also further pointed out that looking forward to the whole year, the yield of Industrial Bank's subsequent assets will be under great pressure, but on the liability side, it will continue to lower the RMB listed interest rate and self-discipline ceiling in the second half of the year along with state-owned banks, and there is room for further reduction in the cost of deposits. "On the whole, the interest margin of Industrial Bank will narrow in the second half of the year, but from the full-year forecast, it will be better than the budget target set at the beginning of the year and is expected to outperform the general trend."

Asset quality is under pressure, and bad real estate business may continue to be exposed in the second half of the year

On the other hand, Cailianshe reporters noticed that from the perspective of asset quality, although the non-performing loan ratio and provision level of Industrial Bank remained stable overall, the pressure has gradually become prominent since the beginning of this year, and the non-performing loan ratios of many industries with a relatively high proportion of loans, such as real estate, have all increased.

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

In this regard, Industrial Bank believes that since the beginning of this year, the bank has continued to promote risk prevention and control in key areas such as real estate, local government financing platforms, and retail credit, and has promptly resolved and disposed of risky assets. However, due to factors such as the transformation of the macroeconomic structure, adjustments in the real estate market, and strict identification of retail cross-defaults, its asset quality indicators still weakened in the first half of the year.

Specifically speaking, in the first half of this year, the bank's wholesale and retail non-performing rate improved, down 0.42 percentage points from the end of last year. However, at the same time, the non-performing rates of several industries with a relatively high proportion of loans also rose to varying degrees, such as the real estate non-performing rate increased by 0.24 percentage points to 1.08%, the construction industry non-performing rate increased by 0.19 percentage points to 1.51%, and the manufacturing industry non-performing rate increased by 0.22 percentage points to 0.79%.

When talking about the asset quality in the real estate sector, Lai Furong, general manager of the risk management department of Industrial Bank, said at the performance briefing that real estate sales and prices continued to decline in the first half of the year, and residents' expectations for long-term housing prices have not improved significantly. The overall real estate market is still in the bottoming out 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 show, and before the transaction volume stabilizes, the capital chain of real estate companies will continue to be under certain pressure due to the impact of sales returns. "We also expect that there will be new non-performing loans in our real estate industry in the second half of the year, and there may be some exposure." Lai Furong said.