But market-oriented reform to put pressure on net interest margin

Agricultural Bank of China Ltd's net interest income stood at 180 billion yuan ($29.4 billion) in the first half of 2013, up 12.2 billion yuan year-on-year, its executives told a news conference on Wednesday.

Net interest income accounted for 76.3 percent of first-half operating income, they said.

However, the net interest margin contracted by 11 basis points to 2.74 percent.

Vice-President Lou Wenlong said that China's move to market-oriented interest rates would put more pressure on the bank's NIM.

The bank will continue to monitor the indicator, making it a key aspect of performance evaluations at its branches. ABC will also focus on reducing high-cost debt and restructuring its assets by lending to high-yielding projects.

Lou expressed confidence that the NIM will be kept at the same level in the current half-year.

Net profit stood at 92.4 billion yuan, up 14.7 percent year-on-year, the fastest rate of growth among the major banks that have released interim results.

China Construction Bank Corp's net profit was up 12.65 percent, while that of Bank of Communications Ltd increased 12 percent.

ABC held 86.7 billion yuan in non-performing loans as of June 30, up 849 million yuan half-on-half. The NPL ratio was 1.25 percent, down 0.08 percentage point.

Song Xianping, ABC's chief of risk control, said that the amount of NPLs rose because the bank took a "prudent approach" by including high-risk loans in the total.

The bank's NPLs were mainly concentrated in manufacturing industries in the Yangtze River Delta in the first six months, particularly iron and steel, photovoltaic products and shipbuilding.

But NPL risks are limited and within control, Song added.

President Zhang Yun said that the increase in NPLs was "normal", considering that the internal and external environment of the banking industry in China has been undergoing dramatic change.

He noted that bad loans had fallen from 120 billion yuan when the bank went public in 2010, and the NPL ratio had fallen from 4.63 percent.

ABC will continue to differentiate itself by facilitating services for the agriculture sector, farmers, rural areas and small enterprises, the executives said.

The balance of loans to small businesses was 742.1 billion yuan as of June 30, up 13.1 percent half-on-half.

Guo Haoda, vice-president of ABC, said that the bank has strengthened its risk controls involving loans to small businesses by diversifying the types of loans, establishing specialized lending teams and formulating credit-rating systems with reasonable and flexible pricing.

The pressure on asset quality in the banking sector will increase in the second half because of the slowing economy and financial reforms, said Zhang.

The recent removal of controls on bank lending rates has brought more competition to the industry, particularly from more small and medium-sized financial institutions, Zhang added.

The total assets of the bank stood at 14.22 trillion yuan as of June 30, up 7.4 percent from the end of last year. But the growth rate will slow in the current half, said Zhang.

ABC's stock closed at 2.45 yuan, down 0.81 percent, on Wednesday.

yangziman@chinadaily.com.cn