Financial Association News on October 30th (Reporter Gao Ping) The financial data for the first three quarters of the Agricultural Bank of China was released tonight, following the intensive disclosure of third quarter reports by listed banks. The data shows that the Agricultural Bank of China achieved a net income of 215.3 billion yuan in the first three quarters, an increase of 3.6% year-on-year. The revenue was 540.2 billion yuan, an increase of 1.29% year-on-year, including net interest income of 437.8 billion yuan, an increase of 1.0% year-on-year. However, fee and commission net income was 61.653 billion yuan, a decrease of 7.65% year-on-year. At the 2024 third quarter earnings conference held on the same day, relevant personnel from the Agricultural Bank of China responded to market concerns.

Earnings conference reveals progress on "capital injection": actively studying and demonstrating the core Tier 1 capital replenishment plan.

The third quarter report shows that as of September 30, 2024, the total assets of the Agricultural Bank of China were 43553.293 billion yuan, an increase of 3680.304 billion yuan from the end of the previous year, a growth of 9.23%. The total amount of loans and advances granted was 24688.299 billion yuan, an increase of 2073.678 billion yuan from the end of the previous year, a growth of 9.17%. Regarding capital replenishment, as of the end of the reporting period, the capital adequacy ratio of the Agricultural Bank of China was 18.05%, with the core Tier 1 capital adequacy ratio being 11.42%.

Recently, regulators have stated that they will strengthen the core Tier 1 capital of six large commercial banks, and will implement it in an orderly manner in stages according to overall planning. How is the progress of the Agricultural Bank of China currently? Today, at the earnings conference, relevant personnel from the Agricultural Bank of China stated that they are advancing the implementation of capital replenishment related work in accordance with the overall arrangements of regulatory institutions and shareholder units. "Currently we are actively communicating with relevant departments and researching and demonstrating the plan for core Tier 1 capital replenishment."

As of the end of June 2024, the average core Tier 1 capital adequacy ratio of the six large state-owned banks was 12.3%. On October 12th, Deputy Minister of Finance Liao Min stated at a press conference of the State Council Information Office that the Ministry of Finance will adhere to the principles of marketization and rule of law, and will further increase the core level capital of large state-owned commercial banks in batches and stages in an orderly manner through the issuance of special national bonds and other channels.

In terms of asset quality, the Agricultural Bank of China has seen an increase in non-performing loans and a decrease in certain aspects. The third quarter report shows that as of the end of the third quarter, the balance of non-performing loans at the Agricultural Bank of China was 324.836 billion yuan, an increase of 24.076 billion yuan from the end of the previous year; the non-performing loan ratio was 1.32%, a decrease of 0.01 percentage point from the end of the previous year. Additionally, the attention loan ratio was 1.42%, the same as the end of the previous year. The overdue non-performing loan ratio was 87.61%, with a provision coverage ratio of 302.36%.

The net interest margin in the third quarter remained flat compared to the first half of the year. It is expected that the net interest margin will continue to be under pressure next year.

Net interest margin is one of the industry's focus points. The third quarter report shows that Agricultural Bank of China's net interest margin is 1.45%, unchanged from the first half of the year. When discussing the net interest margin, the relevant person in charge of Agricultural Bank of China stated that it is expected that the bank's net interest margin will remain relatively stable this year.

The above-mentioned person in charge mentioned that on the asset side, considering the adjustment of existing home loan interest rates in October and the further reduction of LPR, the loan interest rate will still face downward pressure. In addition, on the liability side, with the impact of this year's RMB deposit rate cuts, the pressure on liability costs will continue to ease. Taking into account the overall impact of adjustments to both sides of lending and deposit rates, most of the effects can offset each other, resulting in a relatively small overall impact on this year's net interest margin.

Looking ahead to next year, the relevant person from Agricultural Bank of China further stated that under the macro policy guidance of financial interest concessions to the real economy, it is expected that the bank's net interest margin will still face pressure, with trends aligning closely with the industry peers. It is worth mentioning that as of the time of this report, based on the already disclosed third-quarter bank data, net interest margins have generally narrowed compared to the interim report. Since September, the People's Bank of China has announced and gradually implemented a package of loosening policies. The market is paying attention to the effects of reserve ratio cuts and interest rate reductions on macroeconomic stimulus, as well as the impact on banks from lowering policy rates.

How does the reduction in interest rates impact the banking industry? Recently, in the 2024 third quarter macro policy report released by the China Finance 40 Forum, Zhang Bin, a senior researcher at the China Finance 40 Forum and Deputy Director of the World Economic and Political Research Institute of the Chinese Academy of Social Sciences, specifically analyzed the impact of lowering policy interest rates on the banking system. Zhang Bin believes that interest rate spreads do not constitute a necessary condition for policy rate adjustments, so adjustments must still be made.

"In 2015, China significantly reduced its policy interest rates. Although the policy-guided lending and deposit rates did not narrow, the commercial banking lending and deposit rates both decreased significantly, with the loan rate decreasing more than the deposit rate. The commercial bank interest margin narrowed by 60 basis points." The above report points out that the commercial bank's net interest margin moves opposite to the direction of the "policy net interest margin" changes. This indicates that besides the impact of policy rate adjustments, the industry's inherent competitive forces in the market have a more prominent influence on net interest margins.

Zhang Bin believes that regardless of whether the central bank adjusts policy rates, commercial bank profits will fluctuate with changes in the economic cycle. If policy rates are not adjusted sufficiently to help the economy overcome a demand shortfall, commercial banks' interest margins and profits will face serious challenges. If adjusting policy rates adequately helps the economy quickly recover from a demand shortfall, commercial banks will benefit from it. A rapid and sufficient reduction in policy rates will lead to more significant financial asset valuation effects in the short term for commercial banks, while the losses from narrowing interest spreads will gradually emerge, benefiting commercial banks more.