Huishang Bank's 1H14 net profit jumps 15.8% to CNY2.8b

Loan growth for June was slower YoY.

The net profit of Huishang Bank for 1H14 was CNY2.8b, up 15.8% YoY, higher than the consensus.

According to a research note from Maybank Kim Eng, major discrepancies were higher net fees and lower credit costs.

Meanwhile, the report noted that for the bank there was downbeat net interest income versus buoyant net fees.

Here's more from Maybank Kim Eng:

Loan growth was 15.7% YoY in Jun 2014, slower than 19.3% YoY in 2013. NIM stayed flat at 2.63% in 1H14 (2.62% in 2H13).

The additional yield from IPO proceeds (4-5bps) was offset by higher funding costs (especially for negotiated deposits).

Net fees grew 59.4% YoY in 1H14, mainly driven by a surge in custodian fees from entrusted loans.

Overall, we lower our loan growth forecast (from 17-19% p.a. to 14% p.a. for 2014-15) and NIM forecast (from 2.63-2.64% to 2.58-2.62% for 2014-15).

We raise our net fees CAGR forecast from 22.6% to 36.1% during 2013-16.

Lower cost efficiency; higher credit costs. Cost-income ratio rose to 30.6% in 1H14 (29.5% in 1H13), due to strong growth in staff cost and rental expenses.

We raise our expense CAGR forecast from 10.8% to 17.4% during 2013-16. Credit costs rose to 0.47% in 1H14 (0.24% in 2013) due to an increase in NPLs of CNY360m HoH.

Both special mention loans and overdue loans within 3 months surged by 8.6% HoH and 106% HoH during 1H14.

HUSB only classified 7.4% of these overdue loans as NPLs in Jun 2014. Provision-to-loan ratio remained low at 2.16% in Jun 2014. We maintain our conservative credit cost forecast of 0.66% for 2014-15.

Concerns over shadow bank assets. Total exposures related to trust loans and asset management scheme amounted to CNY13.5b in Jun 2014, up from CNY2.1b.

We believe HUSB has not made provisions and capital charges for these assets. This could result in impairment charges of CNY135m (1.4% of our 2014F pre-provisional profit) and lower HUSB’s CET1 CAR by 40bps (12.43% in Jun 2014).