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RETAIL BANKING | Staff Reporter, China

Agricultural Bank of China to achieve 8% loan growth in 2018

It also expects $138b of new loans.

With the Agricultural Bank of China (ABC) being the prime beneficiary of the country's agricultural land reform, UOB Kay Hian expects it to report loan growth of 8% and new loans of $13b (Rmb870b) in 2018.

34.7% of ABC's total domestic loans come from the county areas. Loan growth in county areas was higher at 13.6% yoy in 3Q17 vs 10.4% yoy for urban areas. These areas also provide a rich source of low-cost deposits.

Here's more from UOB Kay Hian:

Management intends to maintain balanced growth for urban and county areas and loan mix for the two areas at 65:35. There is strong demand for infrastructure loans for public utilities and transportation in both urban and county areas.

ABC’s current accounts expanded by a robust 13.9% yoy as of Sep 17 and CASA ratio improved 2.4ppt yoy to 57.1%, leveraging on its extensive branch network especially in county areas. ABC also provides convenience for customers in county areas through Internet banking and phone banking. County areas provided 42.6% of ABC’s total deposits. Cost of deposits was lean at 1.36% in 1H17, which is comparable to CCB’s industry-leading 1.34%.

ABC disclosed that NPL ratio for county areas improved 14bp qoq to 2.62% in 3Q17. We estimate that NPL ratio for urban areas improved significantly by 28bp qoq to 1.75%. Asset quality for manufacturing, wholesale & retail, real estate and construction sectors has improved.

Credit cost is expected to be stable at about 80bp despite the implementation of FRS 109, buffeted by its high loan loss coverage of 194.3%, which is the highest among the Big-4 SOE banks.

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