* AgBank Q4 net profit up 12.8 pct, within expectations
* Full-year profit growth slowest on record
* Bad loans largely stable in 2014--chief risk officer
* Capital ratio dips but remains above Basel threshold
(Recasts, adds details on bad loan provisions, context,
By Gabriel Wildau
SHANGHAI, March 25 Agricultural Bank of China
Ltd (AgBank) posted its slowest full-year
net profit growth on record in 2013 as the country's third
largest lender bolstered provisions against an anticipated
increase in bad loans.
A slowing economy and the debt overhang from the massive
credit-fuelled stimulus that policymakers launched in response
to the 2008 financial crisis are stoking concern about a rise in
loan defaults in China.
AgBank boosted provisions against future bad loans almost 7
percent in the fourth-quarter of 2013 to 22 billion yuan ($3.55
billion) from 20.6 billion in the same year-ago period, the bank
said in its earnings statement on Tuesday.
This increase raised the loan-loss coverage ratio - which
measures the ratio of provisions to total loans - to a record
high 4.46 percent, well above the industry average of 2.83
percent, according to official figures.
"Currently, the risk in the banking industry is increasingly
high as the macro economy is in a down cycle and is in a
restructuring process," AgBank Chairman Jiang Chaoliang said in
Net profit in 2013 rose 14.6 percent, its slowest ever pace,
to 166.3 billion yuan, but it was in line with analysts'
estimates. Profits for the fourth quarter alone were 28.2
billion, a year-on-year rise of 12.8 percent and lower that the
15.3 percent profit growth in the third quarter.
"Banks tend to book much larger loan provisioning in the
fourth quarter, so we tend to factor in larger loan provisions,"
Grace Wu, head China Banks for Daiwa Capital Markets in Hong
Kong, said before the earnings were released.
SELLING OFF BAD LOANS
Investors are likely to take comfort in AgBank's decline in
non-performing loans (NPLs) and an increase in net interest
The non-performing loan ratio fell slightly to 1.22 percent
at end-December 2013 from 1.24 percent at end-September.
So-called "special mention" loans, or those not classified as
NPLs but considered at risk, also fell 19.1 billion yuan on the
The decline in the NPL ratio was due in part to asset
disposals. AgBank sold off 4.1 billion yuan worth of bad loans
to dedicated bad-loan asset managers in 2013, Chief Risk Officer
Song Xianping said at an earnings briefing in Hong Kong.
Non performing loans reached 87.8 billion yuan by the end of
December, the bank said.
The fears of loan defaults follow a broad range of
indicators that have depicted a slowdown in China's economy in
The weaker economy has put pressure on banks ability to
raise, and maintain, capital. AgBank's tier-one capital ratio, a
key measure of a bank's ability to absorb losses, dipped to 9.25
percent at the end of 2013 from 9.35 percent at end-September.
The bank, however, maintained a dividend payout ratio of 35
percent, meeting a target that analysts had flagged as an
important indicator of its confidence in its asset quality. A
lower dividend ratio would have enabled the bank to boost its
capital through retained earnings.
"Greater efforts were made for the disposal of
non-performing assets and write-off of bad debts to maintain the
stability of our asset quality," President Zhang Yun in the
The China Banking Regulatory Commission requires AgBank and
other large lenders to meet a tier-one ratio of 7.9 percent by
the end of 2014 and 9.5 percent by 2018 as it aggressively
implements new capital adequacy standards introduced last year
in line with the global rules known as Basel III.
To support banks capital-raising efforts, regulators are
encouraging lenders to use hybrid instruments, which combine
elements of debt and equity.
Last week, China's securities regulator unveiled rules for a
pilot programme to allow banks and other listed firms to issue
preferred shares, a form of equity that offers fixed dividends
and is less dilutive than common equity.
AgBank said it had prepared a plan to issue preferred shares
and is awaiting more detailed rules from regulators before
($1 = 6.1888 Chinese Yuan)
(Additional reporting by Shanghai Newsroom and Lawrence White;
Editing by Miral Fahmy)