Agricultural Bank of China (ABC) has seen a 26.3 percent surge in its net profit for 2009 as the country's third-largest lender reaped gains from the country's rapid credit expansion and reform of its rural operations, said its chairman Xiang Junbo.

That solid performance is now spurring the bank to even greater heights. ABC plans to increase its market share in major cities, strengthen corporate governance and expand its global footprint, Xiang said in an interview with China Daily.

The bank posted a net profit of 65 billion yuan in 2009, up 13.5 billion yuan from a year earlier. The capital adequacy and bad-loan ratio stood at 10.07 percent and 2.91 percent respectively by the end of last year, while the provision ratio for bad loans increased to 105.37 percent from 63.53 percent in 2008. The full year results are, however, still subject to audit.

With the key financial indicators in the black, ABC is now confident that its strategy to transform itself as a commercial lender has paid off, said Xiang.

"The robust profit figures are largely the result of a thorough balance sheet cleanup," said the chairman, referring to the 800 billion yuan of bad assets written off in 2008.

"We checked the quality of our assets in a prudent manner when we started the drive two years back," said Xiang, who was the deputy chief of the National Audit Office between 2002 and 2004.

The brisk credit expansion triggered by the nation's stimulus moves also helped buoy profit growth, Xiang said. ABC disbursed $152 billion worth of new loans last year.

Rural mission

Xiang exudes confidence when he speaks about the prospects for rural finance. Skeptics had earlier doubted whether ABC would be able to strike a balance between making profits and fulfilling social responsibilities like supporting farmers.

ABC, which focuses on serving the nation's 800 million farmers in rural areas, is also planning to shift its 2,048 county-level branches to a new rural finance unit. That in turn, would also help the bank to provide a clear picture of its profits from rural finance operations.

"The core issue in China over the next five to 10 years would be the massive urbanization drive. Counties and towns on the fringes of large cities will slowly transform into satellite cities," said Xiang, who was also the former deputy governor of the central bank.

"As part of this process, a great deal of resources would flow into rural areas. At that time, we will have an advantage over others with our extensive rural network," he said.

ABC has the largest retail network, with nearly 24,000 branches across the country, compared with the 17,000 branches owned by Industrial and Commercial Bank of China, the nation's biggest lender by assets.

But with the urbanization drive still in a nascent stage, Xiang said it would take several years to ensure sustained profits from the rural finance unit.

Balanced expansion

Besides cementing its presence in rural areas, the bank is also taking steps to further consolidate its position in key cities over the next three years.

"We have inborn disadvantages when competing with other big lenders in cities, as the bank was originally started to serve farmers in rural areas," Xiang said.

ABC, which started tapping urban business in 1994, is facing fierce competition with the other big three State-run lenders in regions like the Pearl River Delta and Yangtze River Delta, but has outpaced rivals in the country's central and western areas, Xiang said.

"ABC is the numero uno bank in terms of profitability in provinces such as Sichuan, Yunnan and Guangxi. However, in most provincial capital cities we still lag behind our peers," he said.

Overseas growth

Even as the bank makes the right moves in China, it would also take steps to spread its wings abroad. "We will continue to expand our global footprint in the next two years, especially in South America and the Middle East," he said.

ABC has also sought permission to upgrade its representative offices in New York, Tokyo and London into full-fledged branches. It opened branches in Hong Kong, Singapore and representative offices in Seoul, Sydney and Frankfurt last year.

The bank, the only State-run lender yet to be listed, is still under technical preparation for its initial public offering. The chairman said the effective reform of the rural finance operations has provided further impetus to the initial public offering.

Agricultural Bank is also in negotiations with the National Social Security Fund as part of its plan to rope in strategic investors.