Bank of Shanghai Co.,Ltd. (601229.SH) has delivered a mixed set of results for the first half of 2026, with stable overall growth tempered by rising credit quality pressures, particularly in the real estate sector.

The lender reported total operating revenue of RMB 28.842 billion for the January-to-June period, a year-on-year increase of 5.48%. Net profit attributable to shareholders reached RMB 13.299 billion, up just 0.51% from the same period last year. Net interest income grew 7.37% to RMB 17.665 billion, with the net interest margin holding steady at 1.15%. However, net fee and commission income fell by 10.2% year-on-year to RMB 1.85 billion, a key weakness in the bank's earnings profile.

The bank's non-performing loan (NPL) ratio rose to 1.42% by the end of June 2026, an increase of 0.24 percentage points from the end of 2025. Notably, NPLs in the real estate corporate lending segment jumped 33.82% during the period to RMB 4.818 billion, pushing the segment's NPL ratio sharply higher from 2.91% to 3.8%.

Amid these challenges, the bank has received regulatory approval to acquire full ownership of its wholly-owned subsidiary Bank Of Shanghai Co.,Ltd.'s indirectly-held subsidiary, BOS International Limited, converting it from a grandchild entity to a direct subsidiary. However, BOS International has been loss-making since 2021, with total accumulated losses of HKD 2.563 billion over the past five and a half years.

Market-driven fee pressure weighs on non-interest income

In its interim report released recently, Bank of Shanghai Co.,Ltd. posted second-quarter operating revenue of RMB 14.667 billion, up 6.7% year-on-year, while attributable net profit rose a modest 0.38% to RMB 6.965 billion. The profit growth rate slowed from the 0.66% recorded in the first quarter. Non-recurring item-adjusted net profit for the half-year stood at RMB 13.333 billion, up 0.68%.

The bank has proposed an interim dividend of RMB 3.00 (pre-tax) per 10 shares, translating to a total cash payout of approximately RMB 4.263 billion, representing 32.05% of its first-half attributable net profit.

As of June 30, 2026, total assets approached RMB 3.42 trillion, up 3.33% from the end of 2025. Customer loans and advances grew 6.1% to RMB 1.53 trillion, while customer deposits increased 7.43% to RMB 1.86 trillion. Retail customer numbers reached nearly 21.6 million, with retail AUM rising 4.07% to RMB 1.13 trillion. RMB personal deposits grew 4.87% to RMB 660.258 billion, while RMB personal loans increased just 0.60% to RMB 406.069 billion.

Net interest income accounted for 61.25% of total operating revenue. The average yield on loans and advances fell 0.35 percentage points year-on-year to 2.94%, reflecting continued market rate declines and repricing of existing loans. Meanwhile, the average cost of deposits dropped 0.39 percentage points to 1.23% as the bank optimized its deposit structure toward shorter-term instruments.

Despite these efforts, fee and commission income contracted sharply, declining 10.20% or RMB 210 million year-on-year. The bank attributed this to broader market fee reductions, with credit commitment fees down 51.08%, advisory and consultancy fees down 24.52%, and bank card fees down 10.36%. Other non-interest income rose 5.62% to RMB 9.327 billion, helped by a 10.86% increase in investment gains to RMB 11.865 billion. However, fair value losses widened to RMB 2.037 billion, compared with a loss of RMB 1.599 billion a year earlier.

Rising credit risks across real estate and other sectors

Despite top-line growth, the bank's asset quality has deteriorated. The NPL ratio increased 0.24 percentage points to 1.42%, while the special-mention loan ratio improved 0.34 percentage points to 1.77%. The provision coverage ratio declined 46.69 percentage points to 198.25%.

Credit impairment charges rose 20.78% year-on-year to RMB 6.028 billion in the first half, with loan impairment charges on amortized cost basis up 26.29% to RMB 7.366 billion. The bank acknowledged that asset quality is under "phased pressure" due to real estate and related industry exposures.

Corporate loan NPLs rose to 1.66%, up 0.31 percentage points from year-end 2025. Real estate corporate loans totaled RMB 126.9 billion, representing 8.3% of total customer loans. NPLs in this segment surged 33.82% to RMB 4.818 billion, with the segment NPL ratio climbing from 2.91% to 3.8%. Wholesale and retail trade corporate NPLs also jumped from RMB 513 million to RMB 2.981 billion, pushing that segment's NPL ratio from 1.94% to 3.36%.

Personal loan quality showed mixed trends. While new NPL formation declined year-on-year, the personal loan NPL ratio edged up 0.08 percentage points to 1.42% due to slower disposal of existing non-performing assets. Personal business loan NPLs improved, falling 0.28 percentage points to 2.11%. However, personal consumption loans, mortgage loans, and credit card loan NPL ratios all deteriorated, rising to 1.39%, 0.87%, and 2.51%, respectively, from 1.25%, 0.69%, and 2.03% at end-2025.

Separately, on August 17, the Shanghai office of the National Financial Regulatory Administration approved Bank of Shanghai Co.,Ltd.'s acquisition of BOS International. Following the transaction, the bank will hold 100% of BOS International directly. Established in early 2015 as a wholly-owned subsidiary of the bank's Hong Kong unit, BOS International focuses on cross-border investment and financing services for the bank's clients. The acquisition elevates BOS International from a second-tier subsidiary to a direct subsidiary.

However, BOS International has been persistently loss-making. From 2021 to 2025, it recorded net losses of HKD 136 million, HKD 378 million, HKD 733 million, HKD 1.184 billion, and HKD 126 million, respectively. During this period, it received capital injections of HKD 220 million, HKD 322 million, and HKD 800 million from its parent in February 2023, March 2024, and November 2024. In the first half of 2026, the subsidiary posted a net loss of HKD 6 million. As of June 30, 2026, its total assets stood at HKD 2.772 billion, with net assets of just HKD 16 million. Over the past five and a half years, cumulative losses have reached HKD 2.563 billion.