ABC's Strong H1 Loan Growth to Offset NIM Contraction; Net Interest Income Growth Flat Year on Year

Narrow-moat Agricultural Bank of China's, or ABC’s, second-quarter results showed a steady growth in net interest income despite a sharp deterioration in net interest margin, or NIM, thanks to a strong loan growth benefiting from policy tailwinds. In our view, this reflects ABC’s strength in the underserved rural banking market. First-half total revenue and net profits grew 5.9% and 5.5%, respectively, year on year. Revenue growth was largely flat from 2021, while net profit growth slowed to 5.5% from 7.4% year on year. ABC’s loans have grown at an industry-leading pace since 2020. Rural loans contributed over 44% of the total increase in new loans during the past six months, with loan balance growing 11.5% from 2021 and outpacing the 9.5% growth in total loans. Such outperformance was attributable to its inherent advantage in rural financing and policy tailwinds from the government's rural revitalization initiative. Six-month year-on-year growth in fee income was resilient compared with joint-stock bank peers, despite a 1.5-percentage-point decline from the first quarter’s level to 2.8%. This growth was driven by the 12% increase in bank card-related fees, indicating ABC’s credit card customers are more diversified and their consumption behavior was less affected by the economic downturn and COVID-19 lockdowns in major cities in the first half.