Summary of Key Points
In the first half of 2026, Agricultural Bank of China (ABC) achieved double-digit growth in revenue (RMB 410.9 billion, up 11.1%) and profit (RMB 146.381 billion, up 4.9%). However, there has been a significant shift in its profit-making structure: bond investments have replaced loans as the main source of interest income. While its retail business continues to maintain a large customer base, it needs to find new areas for growth. Moving forward, ABC will focus on bond allocation, consumer finance, and the development of a smart bank, while also optimizing its deposit portfolio to control costs and adapt to the trends of financial restructuring and the advancement of AI technology.
I. Performance Growth, but the Source of Profit Has Shifted from Loans to Bonds
Although ABC's revenue and profit both increased in the first half of the year, a closer look at where the money comes from reveals changes:
- Loan interest revenue has barely increased: The interest income from loans only rose by RMB 830 million, due to declining market interest rates, which narrowed the profit margin on loans.
- Bond interest has become the mainstay: Interest income from bond investments increased by RMB 13.621 billion, accounting for more than 90% of the total increase in interest income. In other words, ABC is now earning more from bond investments than from loans.
- Non-interest income has shown mixed results: Fees (such as for transfers and financial services) decreased by 8.7%, but investment income and gains from bond price increases (paper profits) rose by 43.4%, compensating for the decline in fees.
This change reflects the transformation of the financial landscape: businesses are increasingly preferring bond financing, and banks are adjusting their asset portfolios to buy more bonds and issue fewer loans in order to maintain profit growth.
II. Why Are Bond Investments So Profitable?
ABC's bond investment portfolio grew by RMB 1.53 trillion (with a total portfolio of RMB 17.85 trillion) in the first half of the year, and the returns have been stable. There are three main reasons for this:
1. Early investment at low costs: ABC purchased many long-term bonds (with maturities of more than five years) when interest rates were high. Now that market interest rates have dropped, the interest from these bonds is higher than that of new bonds, making them more valuable.
2. Gains from interest rate declines: As interest rates fell, bond prices rose, resulting in paper profits for ABC without any actual sales.
3. Effective risk management: ABC can adjust its bond portfolio (e.g., selling long-term bonds and buying short-term ones) to manage interest rate fluctuations.
Bond returns are expected to remain stable in the future. Currently, low interest rates and a flat yield curve create more trading opportunities, and ABC predicts that its good performance from the first half of the year will continue.
III. A Strong Retail Business, but Need for New Growth Areas
ABC's retail business is a cornerstone of its operations, with 905 million individual customers (the highest in the industry), RMB 21 trillion in deposits, and RMB 9.5 trillion in loans. However, there are challenges, such as a 88.1 billion reduction in personal housing loans due to decreased demand for home purchases. To address these, ABC plans to:
- Boost consumer finance: Support car and home appliance trade-ins, expand loans for smart electronics, elderly care, and cultural tourism, and offer government-subsidized loans to encourage consumption.
- Upgrade wealth management: Increase the sale of financial products, funds, and insurance (with sales of funds rising by 71% and precious metals by 112% in the first half of the year), and provide better services to 320,000 high-net-worth clients (with assets of RMB 3.93 trillion).
- Revitalize branches: The 23,000 branches will not only handle transactions but also provide comprehensive customer services and protect consumer rights.
In other words, ABC will shift from relying on housing loans for retail revenue to generating income through consumer loans and financial services.
IV. Proven Deposit Management Strategies
ABC's deposit portfolio is a key source of stability, with daily average deposits of RMB 39.59 trillion (up 10.2%, leading in the industry), and the deviation from the average has been below 3% for nine consecutive quarters, indicating stable deposits. To manage this portfolio, ABC will:
- Optimize the mix: Seek more low-cost deposits (e.g., corporate settlement funds and personal current accounts) and reduce high-interest time deposits.
- Guide deposits to lower-cost products: When time deposits mature, encourage customers to switch to cheaper products.
- Manage liabilities proactively: Borrow from the central bank or other banks if necessary to control costs.
The goal is to reduce the interest expenses the bank incurs and maintain a stable net interest margin.
V. Three Strategies for the Future: Adaptation for Success
To cope with economic transformation, financial restructuring, and AI advancements, ABC will focus on three areas:
1. Deepen engagement with the real economy: Invest in rural areas, rural revitalization, and small and micro enterprises, and adjust its credit portfolio to favor real economy loans over housing loans.
2. Enhance financial market capabilities: Not only buy bonds but also strengthen trading skills and expand into comprehensive and international services (e.g., cross-border finance).
3. Leverage AI for a smart bank: Use AI to improve management and customer services (e.g., intelligent customer service and risk assessment).
These measures are essential to adapt to the changing financial landscape. Banks cannot rely solely on loans for profitability; with the advent of AI, those that do not digitize will be left behind.
Conclusion: ABC's performance in the first half of the year was solid, but it is transitioning from a "loan bank" to a "comprehensive financial services provider." New businesses in bonds and retail will be key to its future success. For consumers, this may mean more convenient services at ABC, more options for borrowing, and a wider range of financial products.