Non-performing personal loans surged to 3.39%, revealing "structural cracks" in Qingdao Bank's interim report.

On August 27, Qingdao Bank released its interim results, showing a 18.08% year-on-year increase in net profit attributable to shareholders. In the first half of this year, the bank achieved operating revenue of 8.364 billion yuan, a year-on-year increase of 9.15%, while net profit attributable to shareholders rose to 3.619 billion yuan.

A breakdown of this financial statement reveals that the release of its profit elasticity is mainly due to the proactive reduction of liability costs and the phased reversal of investment impairment provisions, while the structural adjustment and differentiation on the asset side constitute the other side of the performance.

In the first half of the year, the average yield on Qingdao Bank's interest-earning assets fell to 3.20% from 3.64% in the same period last year, with the yield on loans and advances declining by 42 basis points to 3.86%.

However, the bank's net interest margin only decreased by 9 basis points year-on-year to 1.63%, demonstrating strong resilience.

The main reason for the relatively stable interest rate spread is the improvement in deposit costs.

During the reporting period, the bank's average cost of deposits decreased to 1.47%, a year-on-year decrease of 39 basis points. Even with a 15.25% increase in average daily deposits, its deposit interest expenses still decreased by 8.77% year-on-year to RMB 3.753 billion.

Among them, the cost rate for personal time deposits decreased from 2.52% to 1.96%;

Meanwhile, the average daily balance of interest-earning assets increased by 21.22% year-on-year to RMB762.971 billion, and net interest income increased by 14.97% to RMB6.164 billion by "compensating for price with volume".

The data on the asset side shows a clear structural differentiation.

In terms of corporate business, the company's loan balance increased by 11.05% to RMB329.428 billion compared with the end of last year, accounting for 77.02% of the total loan amount. The main increase came from the leasing and business services industry, manufacturing industry and other fields.

The retail business, however, is in a state of contraction.

At the end of the period, total retail loans decreased by 2.64% to RMB72.049 billion compared with the end of the previous year, of which mortgage loans decreased by 2.49% and consumer loans decreased by 15.42% to RMB13.731 billion;

In terms of asset quality, the non-performing loan ratio for retail loans rose from 2.58% to 3.39%, and the amount of non-performing loans increased to RMB 2.444 billion, accounting for 60.13% of the bank's total non-performing loans.

In the face of the temporary exposure of risks on the retail side, proactively reducing consumer loan issuance has become a viable option to mitigate these risks.

Changes in non-interest income and asset impairment also supported profits.

In the first half of the year, the bank's net fee and commission income increased by 32.66% to RMB 1.071 billion, mainly benefiting from the business flexibility of subsidiaries such as Qingdao Wealth Management. Affected by bond market fluctuations, investment income and fair value changes decreased by RMB 349 million, resulting in a slight year-on-year decrease of 4.40% in overall non-interest income.

However, on the operating expense side, the bank's credit impairment losses decreased by RMB 415 million year-on-year to RMB 1.817 billion.

Although loan impairment provisions increased by RMB 371 million with the growth in scale, credit impairment losses on financial investments turned from an expenditure of RMB 497 million in the same period of the previous year to a net reversal of RMB 250 million, creating room for profit release.

In terms of capital indicators, Qingdao Bank's capital adequacy ratio at the end of the reporting period decreased by 1.44 percentage points to 11.93% compared with the end of the previous year, due to the redemption of RMB 6 billion of Tier 2 capital bonds and the expansion of risk-weighted assets during the reporting period; the core Tier 1 capital adequacy ratio rose slightly to 8.68%, remaining above the regulatory requirements.

Overall, Qingdao Bank mitigated the pressure from retail adjustments by controlling liabilities and expanding its corporate banking business.

However, as the marginal effects of impairment reversals and interest rate cuts on liabilities diminish, whether retail credit can stop falling and stabilize, and whether fee income can continue to supplement non-interest income, will be the key to testing whether its high ROE can continue.

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