China Merchants Bank expects its net interest margin to recover rapidly when interest rates in the country start to increase, senior bankers said yesterday.

The bank was hit hard by its debt allocation in the first half of this year as its current deposits were high, which caused its profit to drop, said Ma Weihua, president of the Shenzhen-based bank, during a telephone conference yesterday.

The bank's high proportion of current deposits made it bear higher lending costs because cuts on current deposits are not as deep as those on loan rates during the last five interest rates trimming late last year, which squeezed its interest margin the most among rivals.

The bank's interest margin dropped to 2.24 percent at the end of June from 3.66 percent a year ago. Its first-half profit tumbled 37.62 percent to 8.26 billion yuan (US$1.21 billion) year on year.

But the trend will reverse once a spiral of interest rate increases takes shape in the future which may help the bank to post a strong profit.

The bank's capital adequacy ratio target will remain at 12.6 percent as the lender raises its rights issue, Qin Xiao, chairman of the bank, said yesterday. Its capital adequacy ratio fell to 10.63 percent at the end of June from 11.34 percent at the end of last year.

The bank raised its planned rights issue up to 22 billion yuan in Hong Kong and Shanghai from a previous upper target of 18 billion yuan, the bank said over the weekend. It will offer up to 2.5 shares for 10 existing shares, compared with a previous plan to offer two shares for 10 shares.

(Shanghai Daily September 1, 2009)