OREANDA-NEWS. August 23, 2011. Shenzhen Development Bank (SDB, stock code 000001 in Shenzhen Stock Exchange) submitted its performance release for 1H 2011 against Shenzhen Stock Exchange. During 1H 2011, SDB saw a robust growth in asset size, steady growth in interest spread incomes and sound YoY growth of fee incomes, reported the press-centre of SDB.

With asset quality further improving and better improvement in profitability, its net profit grew significantly by 56% to as high as RMB4.732bn. Key financial highlights are:

SDB recorded a total of RMB4.732bn of net profit, representing a YoY growth of 56%. Earnings per share are 1.36 Yuan, a YoY growth of 39%.

As of 1H 2011, total assets of SDB amounted to RMB852.1bn, representing an increase of 17% versus year beginning. General loan balance increased to RMB432bn, up by 11% versus year beginning. Total deposits increased 12% versus year beginning to RMB632.5bn.

Both NPL amount and NPL rate witnessed decline. As of June 30, 2011, total NPL balance was RMB1.973bn, down by 17% versus year beginning; NPL rate was recorded as 0.44%, a 14bp drop versus the year beginning; The recovery of NPA totaled RMB1.170bn.

Provision coverage stands at 380%, an increase of 108% versus year beginning, suggesting the risk prevention capability has been further strengthened.

As of June 30, 2011, CAR and CCAR were 10.58% and 7.01% respectively, both meeting regulatory requirements.

SDB continued its investments and inputs in information system, human resources, process optimization and strategic initiatives.

Meanwhile SDB announced that the A-share non-public offering program for capital replenishment purpose (abbreviated as “this NPO” hereinafter) has been approved at the BoD meeting. According to this NPO plan, SDB plans to issue no more than 1.19 billion new shares at a price of RMB16.81 Yuan per share for PAG to subscribe with cash consideration, to raise up to RMB20bn Yuan of capital. The funds raised, after deduction of relevant expenses during the issuance, will all be used for capital replenishment purpose.

The full text of the report and announcement can be found on SDB website (www.sdb.com.cn) or www.cninfo.com.cn. This news release lists out the financial highlights of 1H 2011, key content of the announcement of NPO as well as Management Discussion and Analysis, with 1H profit/loss statements summary attached.

Substantial profit growth and steady improvement in profitability
During 1H 2011, SDB renewed its efforts in asset/liability portfolio management, which have led to significant improvement in return on assets. The bank recorded a total of RMB4.732bn of net profits, a growth of 56% on YoY basis.

Thanks to growth in the size of interest-earning assets, increase of interest spreads and improved asset portfolio in 1H 2011, the Bank recorded net interest income of 10.4bn, representing a year-on-year growth of 40%. Net interest income in Q2 amounted to RMB5.29bn Yuan, up by 4% on quarter-on-quarter basis. The significant year-on-year increase in net interest income was mainly due to 31% average year-on-year growth in interest-earning assets and the rise of NIM to 2.63% in 1H this year from 2.46% at 1H 2010.

During Jan. to Jun. 2011, net non-interest income was recorded at 1.75bn Yuan, a growth of 61% on year-on-year basis, including 58% increase in net fee and commission income to RMB1.19bn. During 1H 2011, SDB saw a round increase in all fee income items, including a year-on-year growth of 352% in wealth management fee incomes as a result of diversified WM products and gradual expansion of wealth management business size. During 1H 2011, other operating revenue at SDB was recorded of 560mn Yuan, representing a year-on-year growth of 66%, which was mainly due to price difference gains from discounted bills. For the whole 1H 2011, SDB booked 12.1bn Yuan of total operating revenue, representing a growth of 43% versus same period last year.

The operating expenses (excluding business tax) at SDB for 1H 2011 increased by 23% year on year to 4.4bn Yuan, which was far below 43% growth in respect of net operating income. The increase in operating expenses was mainly due to the increase in headcount, growth in business size and expansion of business outlets, as well as the continued investments and inputs of resources for purpose of process optimization and IT infrastructure. Cost/income ratio (excluding business tax) was 36.30%, down by 5.96% versus 42.26% recorded for same period last year. Profit before provision amounted to RMB6.78bn Yuan, up by 58% on YoY basis and up by 26% quarter on quarter. During 1H 2011, SDB accrued a total of 730mn Yuan of asset impairment provision, which was an increase of 48% on YoY basis and down by 65% on quarter-on-quarter basis. Pre-tax profit was recorded as 6.07bn Yuan, an increase of 57% versus same period last year. After-tax profit increased by 56% YoY to 4.73bn Yuan.

For 1H 2011, the annualized average return on total assets was 1.20%, representing 24bp increase versus the whole year 2010. Annualized weighted average return on equities was 24.74%, up by 152bp versus the whole year 2010. During January to June 2011, earnings per share were 1.36 Yuan, which was an increase of 39% versus same period last year. And as of June 30, 2011, SDB had a total of 3.485bn shares of stock capital.

Various businesses achieved good growth and the advantages gradually became evident
In 1H 2011, the Bank’s various businesses maintained sound growth momentum. As of June 30, the Bank’s total asset was RMB 852.1bn, increasing by 17% compared with year beginning; in which the total loan (including discount) was RMB 448.5bn, increasing by 10% and the common loan balance increased by 11% to RMB 432bn, accounting for 95% of the total loan at the end of period; the total deposit was RMB 632.5bn, increasing by 12% compared with year beginning. The Bank’s liquidity was abundant. As of the end of June, 2011, the liquidity (RMB and foreign currency) ratio was 54.49% and the important liquidity indicators reached or exceeded the regulatory requirements. In 1H 2011, the Bank established one new outlet each in Shanghai, Guangzhou and Wuhan and its outlet number totaled to 296.

In 1H 2011, the Bank’s corporate banking continued to focus on expanding new fields of trade finance, improving electronic corporate business and small-amount deposit customers, keeping balanced growth of loans and optimizing loan structure, etc. As of the end of June, 2011, the Bank’s deposit balance increased by 11%, the common corporate loan balance was up by 12% and net corporate fee income soared by 86% on a YoY basis. The trade finance balance was RMB 216.9bn, increasing by 24% compared with year beginning and the NPL rate decreased by 0.1 percentage point compared with year beginning to 0.19%, which was still at a low level. The international offshore business developed rapidly and the customer scale grew steadily.

The Bank further brought the platform advantages of “online supply chain” into full play and successfully achieved connection with many core customers’ business platforms. The Bank kept improving and upgrading product functions and successively completed the development and launch of a series of featured product functions. In the report period, the Bank was awarded with “The Bank with Best Innovation in International Business” in the activity of “The Most Trustworthy Financial Service Provider of 2010 Recognized by Foreign Trade Enterprises in China” jointly held by Trade Finance magazine and SINOTF.com.

As for retail business, the Bank enhanced internal cross-selling and the driving to deposit by WM product sales and expanded incremental deposit through auto loan and personal loan channels. The Bank implemented “Gold Card” strategy to significantly improve mid-end customers’ deposit contribution and its many measures in segmenting and digging out deposit business source achieved quite good results. As of June 30, 2011, the Bank’s retail deposit balance was RMB 104.4bn, increasing by 23% compared with the end of last year, the retail loan balance increased by 10% compared with the end of last year and the net retail fee income hiked by 71% on a YoY basis.

The Bank took the lead among the peers. In 1H, the Bank’s WM product sales volume soared by 267% compared with the same period of last year, the trading volume of personal precious metal soared by over 20 times compared with the same period of last year and the revenue soared by 1,871% compared with the same period of last year. In 1H 2011, the Bank’s CC business kept sound and rapid growth. As of June 2011, the bank’s valid card number reached 4.49 million, up by 14.5% on a YoY basis. In terms of product development, the Bank insisted on building differentiated competitive edge and developed and designed co-branded credit card with PA Life by leveraging the huge customer base of PAG. As of the end of June, totally 170,000 such cards were issued. In 1H 2011, the Bank’s micro finance business achieved sound development with its balance reaching RMB 3.4bn, increasing by 58% compared with year beginning and its NPL rate was lower than 1.2‰.

The NPL rate and amount kept decreasing and the CAR remained stable
In 1H 2011, with the opportunity of two banks’ integration and as per the requirements of “Best Bank Strategy”, the Bank further improved credit risk management system and credit risk management level and achieved steady and rapid growth of credit business and effective control on incremental NPL amount and NPL rate. Both the NPL rate and amount decreased and the provision coverage was further enhanced. As of June 30, 2011, the Bank’s NPL balance was RMB 1.973bn, decreasing by RMB 394mn compared with year beginning, the NPL rate was 0.44%, decreasing by 0.14 percentage point compared with last year and the provision coverage reached 380%.

In 1H, the Bank achieved good performance in collection with totally RMB 1.17bn NPA being collected. In the collected loan principals, RMB 520mn was written off and the NPL which was not written off was RMB 519mn. In the collected asset, 99% were collected in cash.

In 1H 2011, the Bank, through enhancing asset/liability portfolio management, controlled the capital consumption while improving profitability so as to maximally increase return on risk assets. Meanwhile, the Bank successfully issued RMB 3.65bn hybrid bonds at interbank bond market, which effectively supplemented the tier-2 capital. As of June 30, the Bank’s core CAR and CAR were 7.01% and 10.58%, which were in line with regulator’s requirement.

Integration advances smoothly and future prospect is worth expecting
On July 28, SDB released announcements that shares transfer of PAB, cash payment for subscription by PAG and SDB new shares registration and custody procedures have all completed, and SDB has officially become the controlling shareholder of PAB with 90.75% PAB shares, and PAG has also officially become the controlling shareholder of SDB with 52.38% SDB shares.

For next step, the two banks will come to a substantial integration to effectively supplement each other, expand outlet network and fully leverage synergy effect and intensive resources effect. After the two banks’ integration, the service network of SDB will develop rapidly. There will be 6 branches added and the coverage of SDB will expand to 28 cities; there will be 76 business outlets added and the total number will be increased to 369, especially with outlet presence at coastal areas becoming more complete. In the meantime, the number of ATM across sales network will also see an obvious increase to significantly boost the number of remote channels for customers. For SDB after the integration, its Credit Card business and SME business will be strongly supplemented to bring great growth potential. So far, the number of active credit cards issued by PAB is over 6mn, ranked at No.1 among city commercial banks across the country. After the two banks’ integration, the number of SDB CC customers will have a quick increase. One thing worth mentioning is that SDB will have opportunity to see a rapid growth of CC customers across the country thanks to broad customer resources of PAG and cross-selling model. As an advantageous business of SDB, Trade Finance Platform will also align and integrate with SME loan business at PAB to further sharpen the advantage of SDB at SME financing business.

Capital supplement plan is in place and the Best Bank Strategy is pushed ahead
SDB at the same time releases announcement that BoD has deliberated and approved the next-step capital supplement plan: propose to issue new shares to PAG which subscribe for new shares via cash, with issuance price set at the average trading price of the stock during 20 trading days before the pricing cut-off date, i.e. RMB16.81 yuan/share; the number of shares issued is 892 million but no more than 1.19 billion shares; the fund raised is no more than RMB 20bn, which will be fully used to supplement capital after relevant issuance fees are deducted. 

After this NPO, CCAR and CAR of SDB will be effectively boosted; based on RWA as of June 30, 2011, if RMB20bn core capital is supplemented in place, it is expected that it will enable SDB CCAR and CAR to exceed 10% and 13%, respectively. The capital supplement will well enhance the Bank’s capability to prevent risks and be beneficial for the Bank to expand asset and business scale with sufficient capital base, so as to realize sustainable profit growth.

In the second half of 2011, the Bank will actively implement the strategy of Best Bank, continue to enhance portfolio management, pay attention to fee business innovation and pricing management, future improve asset yields and control capital consumption; leverage cross-selling and the platform of integrated finance to gradually increase market share; in the meantime, reply on the integrated finance platform of PAG, expand core value customer base and increase the market share in terms of number of cards and business volume; enhance risk prevention and management capability and improve asset quality; continue to tap the revenue growth potential of value-added business and further increase business profitability.