Huarong’s profit shrinks due to ‘credit risks’

China Huarong Asset Management Co showed, one of the four largest asset management firms in China, said on Sunday that its first-half net profit might declined significantly.

The board of directors said the decline mostly reflected the fact that some of the company's financial assets had exposed credit risks, and loan-loss provisions had significantly increased.

Also, the company had higher external financing, which meant higher interest expenses.

An employee at China Huarong's board of directors office told the Global Times on Monday that the company had no further information to disclose on the credit risks issue.

China Huarong's shares slipped by 4.1 percent to HK$1.87 (24 cents) on Monday.

Xi Junyang, a finance professor at the Shanghai University of Finance and Economics, said that in recent years, financial assets' risks, particularly the payment risks of financial products, had arisen more frequently amid downward economic pressure.

“When the economy is growing strongly, there are many good investment choices and yields on financial products are often high. But now asset management companies' financial products are likely to record capital and interest losses. So they should either look for stable investment channels (which is not easy) or shrink their financing scale to prevent potential risks,” Xi told the Global Times on Monday.

Commenting on China Huarong's rise in external financing, Xi said that it might be a “mistake” in the firm's operation.

Caijing.com.cn reported that on July 26, Zhu Xianzhong, who used to be China Huarong's Party committee secretary, was removed from his post.

A statement by the China Securities Regulatory Commission on Friday also noted that it had ended Zhu's position as a member of the 17th (stock) issuance examination committee.

The profit warning and removal of Zhu also came after an anti-corruption probe into its former chairman Lai Xiaomin in April.

Lai was suspected of “serious violation of Party disciplinary rules and law,” according to the Central Commission for Discipline Inspection and the National Supervisory Commission.