Agricultural Bank of China （ABC） reported 2Q16 results, with net profit ofRmb50.5bn, up 0.5% yoy. Similar to CCB, the results were dragged by weakrevenue （down 9% yoy） as a result of slow asset growth and the VAT impact,offset by better cost control and lower credit costs. The bank saw a slowerNPL formation rate in the first half, with continuing efforts in optimizing theloan portfolio. Nevertheless, in contrast with peers, ABC's retail banking PBTdropped by 24% yoy in 1H16 on slowing fee income and a higher provisioncharge on weaker retail asset quality. Among the Big Four, CCB and ABC havereported 2Q16 results and CCB delivered a relatively stronger set of results.
　　Retail banking segment performance lagging peersABC's retail segment PPOP recorded no growth yoy in 1H16 （vs. 19% yoy forCCB and 26% yoy for CMB）， primarily due to a decline in net interest income of2% yoy and slowed retail fee growth of 3% yoy. This is probably a reflection ofits slowed retail banking business. For example, ABC's WMP balance actuallydeclined by 2% hoh in the first half to Rmb1.55tr. The bank also set aside aRmb12.9bn provision charge for retail loans, equivalent to an 89bps credit cost（2H15: 27bps）。 The higher provision was probably due to the weaker assetquality of retail business loans （NPL ratio up 68bps hoh to 4.37%） and creditcard overdrafts （NPL ratio up 25bps to 2.98%）。 As a result, retail PBT droppedby 24% yoy in 1H16 to account for 35% of the group's （vs. 45% in 1H15）。
　　Asset quality: slowing NPL formation albeit rising overdueThe bank's NPL formation ratio declined to 111bps in 1H16, compared with119bps in 1H15 and 180bps in 2H15, in our estimates. As a result, the NPLratio nudged up only 1bp from end-2015 to 2.40%. However, overdue loansbeyond 90 days grew by 13% hoh to account for 2.18% of total loans （vs.
　　2.03% at end-2015）。 In 2Q16, the bank set aside 80bps credit cost, flat qoq anddown 2bps yoy, leading to a lower NPL coverage ratio of 178% at end-June.
　　2Q16 – Running the numbers
　　PPOP declined 3.3% yoy due to NIM compression of 52bps yoy （15bpsqoq）， offset by 18% yoy drop in expenses and net fee income of 7.4% yoy.
　　Capital stayed relatively weaker than for the other Big Four banks, withreported CET1 and CAR of 10.06% and 12.81% in 2Q16. Managementstated during the briefing today that there is no imminent need to raisetier-1 capital for now and it plans to issue up to Rmb80bn tier-2 securities.
　　The bank recorded the slowest asset growth （+7.0% yoy） since the IPO.
　　Corporate loans grew by only 1% yoy as the bank scaled back riskiersectors, i.e. wholesale and retail （-14% yoy）， real estate （-14%）， mining（-7%） and manufacturing （-6%）。
　　ABC purchased Rmb465bn of municipal bonds in 1H16, constituting a13% market share. The bank views municipal bonds as attractiveinvestments, given a stronger net return on RWA at 1.12% （loans: 0.75%）。