CITIC Bank's 1H15 net profit edged up slightly by 2.5%

Asset quality trend unexpectedly better.

CITIC Bank reported Rmb22.6bn net profit for 1H15, up 2.5% y/y.

According to a research note from Barclays, 1H profit met 54% of Barclays’ FY15 profit estimate and Bloomberg consensus. Excluding the impact of the 44% higher provision charge, 1H revenue and PPOP growth were at 12%/14%.

On a sequential basis revenue/profit growth were also decent at 12%/7%, thanks to steady B/S expansion and strong fee income. Overall, CB’s 1H15 results met expectations with asset quality trends better than expected.

Here's more from Barclays:

Key positives: asset quality, margin and non-interest income. CB’s NPL ratio increased by only 2bps h/h to 1.32%, thanks to large write-offs of RMB 12.6bn in 1H15(vs. RMB 11.6bn in 2014). Asset quality deterioration may slow down as overdue loans grew by only 9% h/h (vs. 40.5% in 2H14), much milder than Ping An Bank’s change (NPL ratio +30bps h/h and overdue loans +27% h/h).

The bank’s sequential NIM in 2Q15 stood at 2.32%, unchanged from 1Q15. On a h/h basis, NIM contracted moderately by 12bps to 2.32% in 1H15 as lower loan yield partially offset by lower deposit cost after benchmark rate cut. Fee income (+37% y/y) was a key driver to the top line, which was mainly attributed to bank card fees (+59% y/y), agency fees (+152% y/y) and wealth management fees (+45% y/y).

Key negatives: CAR & receivable investments. We still view CB’s 1H15 T1 and total CAR of 9.0% and 11.9% a bit weak considering the macro slowdown and potential credit cycle. Also, CB grew receivables investments by 38% in 1H to Rmb901bn, or 20% of total assets. These assets include directional investment schemes to brokerage firms. We see little credit risk but potentially high volatility in these assets.

New operational and business focus - large corporate and asset quality control: Among the many business initiatives, we view the client strategy and asset quality control as the management team's key priority. CB is trying to further strengthen its relationship with its institutional client base, particularly government bureaus, institutional organizations like universities and hospitals as well as large corporate customers.

In other words, CB is trying to provide more comprehensive financial services to large and safer corporate clients to assure business quality. CB also set rigorous internal rules to identify and control impaired loans with a monthly execution plan, particularly for loans related to steel, coal-mining, paper, shipyard, solar photovoltaic and real estate sector.