Agricultural Bank of China's asset quality further deteriorates as NPLs grow 12.3% to RMB179bn

It's the same growth rate in the past two quarters.

ABC's 3Q15 net profit of RMB48.9bn was in line with analysts' estimates. Barclays notes that 9M15 net profit of RMB153bn met 83% of their 2015E full year estimates.

"Net interest income edged up by only 1% y/y in 3Q15 due to margin pressure, further slowing down from 4% in 2Q15. The 8% sequential net fee decline was better than expected considering the equity market pullback, likely because ABC’s client base is less involved in equity market investments. 9M revenue growth was 3.6%, but higher provision charge largely offset the revenue growth and resulted in only 0.5% profit growth."

Here's more from Barclays:

Operating expense growth outpaced that of revenue: Unexpectedly, operating expense grew by 6.8% y/y in 3Q15 to RMB53bn, outpacing that of revenue growth and thus resulting in PPOP growth of only 3.4% y/y in the quarter.

Asset quality further deteriorated: NPLs grew by 12.3% q/q to RMB179bn, with the growth rate similar to that registered in the past two quarters. The NPL ratio reached 2.02% at end-3Q15, up 19bps q/q and 48bps year-to-date. Credit cost was 0.83% in the quarter, +2bps y/y but -5bps q/q. In 9M15, credit cost was 0.9%, up 15bps y/y.

Slow loan and deposit growth: Total loans and deposits grew by 1.7% and 1.1% q/q respectively in 3Q15, slower than the system’s 3.8% and 1.4%. The drivers for both loan and deposit are from retail customers, as retail loan and deposits increased by 4% and 1.8%.

Rural business witnessed faster NPL increase. ABC’s NPL ratio in county area rose by 69bp during 9M15 to 2.51%, much stronger than the firm’s total NPL ratio increase of 48bp (from 1.54% to 2.02%, implying urban area NPL ratio rose by only 38bp from 1.40% to 1.79%). Given county area still accounts for 1/3 of ABC’s total loan, we will closely monitor the future asset quality trend.