Earnings growth picked up in 2Q15 underpinned bystrong rebound in fee income growthNPAT growth picked up to 1.2% YoY in 2Q15 from 1.0% in 1Q15 whilemost peers reported a slowdown in 2Q15, mainly due to a strong reboundin fee income growth and lower CIR in the quarter.
Positives: 1) Fee income growth rebounded strongly to 10.9% YoY in2Q15 compared to -15.9% in 1Q15 driven by the rapid growth in agencycommissions, banks card fees and diversified business fees; 2) theproportion of fee income to total incomes improved 1.78pp QoQ to21.85% in 2Q15 while non-interest income accounted for 31.6% of totalincomes in 1H15; 3) CIR declined 2.02pp QoQ to 35.49% in 2Q15 as aresult of better cost control; 4) the proportion of overseas assets furtherimproved to 27.53% in 1H15 from 27.41% in 2014, while the proportion ofoverseas pre-tax profit increased to 22.91% in 1H15 from 22.22% in1H14; 5) deposit and loan growth in overseas market grew at a fasterpace of 8.2% YoY and 5.8% YoY in 1H15 compared to that in domesticmarket; 6) asset quality of overseas business remained benign with NPLratio down to 0.17% in 2Q15 from 0.18% by end of 2014.
Negatives: 1) NIM compressed 8bps QoQ to 2.14% in 2Q15 mainlydragged by a larger NIM contraction in domestic FX business; 2) assetquality of the Group continued to be under pressure with NPL balance up7.1% QoQ and NPL ratio up 8bps QoQ to 1.41% despite a moderation ingross NPL formation from 1.09% in 1Q15 to 0.97% in 2Q15; SMLs edgedup 2.1% HoH and overdue loans increased 39.1% HoH, both milder thanmost peers; 3) credit cost lifted 3bps QoQ to 0.67% in 2Q15 whilecoverage ratio slipped 9.66pp QoQ to 157.37% in 2Q15 due to NPLdisposals.