Despite efforts to reduce liabilities, Lanzhou Bank's net profit declined by 8.95% in the first half of the year, failing to offset pressure on asset returns.

Despite efforts to reduce liabilities, Lanzhou Bank's net profit declined by 8.95% in the first half of the year, failing to offset pressure on asset returns.

On August 31, Lanzhou Bank released its 2026 semi-annual report, disclosing that the company achieved operating revenue of 4.179 billion yuan in the first half of the year, a year-on-year increase of 6.60%, and net profit attributable to the parent company after deducting non-recurring gains and losses of 960 million yuan, a year-on-year increase of 7.14%.

Amidst a backdrop of narrowing interest rate spreads across regional banks, their revenue and net profit excluding non-recurring items maintained positive growth, seemingly indicating strong performance.

However, a closer look at its profit and loss statement and balance sheet reveals that the core logic behind Lanzhou Bank's profit growth does not stem from effective expansion of assets, but rather from the proactive reduction of liability costs.

Beneath the surface of "increased revenue" lies shrinking retail credit, slowing asset expansion, and increased pressure on real asset quality after impairment provisions.

In the first half of 2026, Lanzhou Bank achieved net interest income of RMB 3.2 billion, an increase of RMB 172 million year-on-year.

However, a closer look at the structure reveals that interest income actually decreased by 232 million yuan year-on-year. The reason revenue was able to maintain growth was mainly due to a significant reduction of 403 million yuan in interest expenses.

Affected by declining market interest rates and policy guidance, the average yield of interest-earning assets fell by 47 basis points from 3.52% in the same period last year to 3.05%; while the average interest rate of interest-bearing liabilities fell by 39 basis points from 2.17% to 1.78% during the same period.

By repeatedly lowering deposit prices and reducing high-cost long-term deposits, Lanzhou Bank has maintained its net interest margin at 1.30%.

Non-recurring gains and losses also caused disruptions, with net profit attributable to the parent company at RMB 866 million during the reporting period, a year-on-year decrease of 8.95%.

This gap is mainly due to the volatility of gains and losses from changes in the fair value of trading financial assets and gains on disposal.

In addition, net fee and commission income decreased by 11.16% year-on-year to RMB136 million, indicating that its intermediary business and wealth management transformation are still in the bottoming-out stage.

As of the end of June 2026, Lanzhou Bank's total assets reached 533.102 billion yuan, a slight increase of only 0.58% from the beginning of the year, with its growth essentially stagnating.

The total amount of loans and advances issued was RMB259.063 billion, an increase of 1.59% from the beginning of the year.

By structure, corporate loans reached RMB 212.46 billion, while retail loans showed a clear risk-averse and contractionary attitude. As of the end of the reporting period, personal loans amounted to RMB 53.744 billion, a decrease of RMB 4.619 billion from the beginning of the year. Among them, personal housing loans remained basically unchanged, while personal consumption loans decreased by 24.51% from RMB 19.492 billion at the beginning of the year to RMB 14.716 billion.

This reflects that management is proactively cutting off the supply of some high-risk retail credit in the face of macroeconomic adjustments and credit risks on the household side.

Total deposits received amounted to RMB 374.834 billion, a decrease of 0.38% from the beginning of the year. Despite the slight decrease in scale, the deposit structure was reshaped, with personal deposits increasing by RMB 4.683 billion.

This structural adjustment, coupled with interest rate cuts, reduced the interest rate on personal deposits from 2.55% in the same period last year to 2.09%, and the interest rate on corporate deposits to 1.16%, freeing up crucial room for profits.

As of the end of June 2026, Lanzhou Bank's non-performing loan ratio was 1.78%, an improvement of 0.04 percentage points from the beginning of the year.

However, the stability of the non-performing loan ratio does not mean that the clearing of credit risk is over. The provision coverage ratio decreased by 6.69 percentage points from 198.38% at the beginning of the year to 191.69%; the loan loss provision ratio decreased from 3.62% to 3.41%.

Credit impairment losses amounted to RMB 2.145 billion during the reporting period, an increase of 20.07% year-on-year. While increasing impairment provisions, the provision coverage ratio continued to decline, indicating that write-offs and non-performing loan disposals consumed a significant amount of resources.

In addition, the indicators show that the migration rate of loans under special mention remains as high as 14.62%, indicating that the pressure to defend asset quality will continue.

In summary, Lanzhou Bank leveraged its extensive branch network and customer base in Gansu Province to reduce its liability costs through deposit repricing, which supported the recovery of its revenue and net interest income.

On the asset side, the approach of simply pursuing scale expansion was abandoned, and structural adjustments were made by reducing consumer loans and filling the gap with corporate projects.

The progress of its consumer credit clearing and the endogenous growth momentum in the absence of real credit demand, given the limited room for deposit interest rate cuts, still need to be closely monitored.

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