Agricultural Bank of China’s first half profit rose but its structured products market share edged down during the period. The Chinese bank also saw its margins squeeze.

The net profit of the bank came in at CNY121.4 billion (US$17 billion) in the January to June period this year, up 4.9% from the same period a year ago. Its net interest margin – a key gauge of profitability – however, dropped to 2.16% from 2.35% posted in the previous year.

Agricultural Bank of China attributed the drop to three main reasons that involve ‘intensified’ market competition in the deposit business, a rise in loans and a drop in interest income from amounts due from financial institutions due to the lower rate environment.

The Chinese third-largest lender by assets was the sixth biggest distributor in the country’s structured products market with a sales volume of CNY23.4 billion in the first half of this year, according to SRP data. It marked a 26% drop from the first half of 2018, resulting in the bank’s market share to also shrink to less than 1.5%.

A total of 305 products that were distributed by Agricultural Bank of China are live on SRP database. The products altogether raised a sales volume of US$4.9 billion. The largest sales volume was generated by products linked to a currency pair of EUR/USD. Other underlying assets include CSI 300 Index, gold and USD/JPY.

 

All products distributed by the bank are capital as well as coupon guaranteed. The 汇利丰2019年第464期人民/Structured Deposit CNY S464, for example, offers a four percent coupon if the underlying remains at a pre-determined range at maturity, but also provides a 3.9% coupon even though the underlying doesn’t satisfy the condition.

The majority of the products, or 268, are wrapped as structured deposits. Structured deposits have come under fire for being used as a tool to bypass regulations forbidding banks from guaranteeing returns to investors. China started an aggressive crackdown in 2017 on the shadow banking sector, mainly the asset management products (AMPs) that carry implicit guarantees.

AMPs are one of the largest funding sources for shadow loans in China, or off-balance sheet lending, that amounts at around US$9 trillion.

Click the link to read the full Agricultural Bank of China interim results for the six months ended June 30 2019.