China’s AgBank to cut costs as it tries to soothe investors

City A.M. Reporter
Agricultural Bank of China will see its cost-to-income ratio fall by five to eight percentage points after its public offering, the bank said yesterday, as it tries to ease investor concern about its high cost base.

Every one percentage point fall would lead to a subsequent 2bn yuan jump (£195m) in net profit, bank vice-chairman Zhang Yun said ahead of its listing in Shanghai and Hong Kong next month.

“If we cut our cost-to-income ratio by one percentage point, we expect it to help our net profit grow by 2bn yuan,” Zhang said.

AgBank’s cost to income ratio in 2009 was 43.4 per cent, compared with 33 per cent at Industrial and Commercial Bank of China and 39 per cent at China Construction Bank.

The Beijing-based lender has 24,000 branches, 441,000 employees and 320m customers.

AgBank is typically seen as a riskier investment compared with some of its rivals because of its higher ratio of bad loans and huge network of branches in rural areas, many of which are under-utilised and increase its operating expenses.

The bank also said it would pay underwriters 1.96 per cent of the proceeds from the Hong Kong public portion of its initial public offering.

Expenses, including aggregate commissions and fees, were estimated at HK$1.3bn, AgBank said in its prospectus. AgBank will sell shares in Hong Kong within a range of HK$2.88 to HK$3.48 each, raising up to $11.4bn (£7.6bn) to help it strengthen its capital and support ongoing growth.