Bank of Lanzhou's H1 Core Net Profit Up 7.14% as Funding Costs Fall

The banking industry is entering a phase of structural differentiation, with regional city commercial banks facing a critical period of growth model reshaping. Lanzhou Bank (001227.SZ), the only A-share listed city commercial bank in Gansu Province, has completed a clear strategic shift, focusing its operations on liability cost management, asset structure optimization, and gradual credit risk mitigation, demonstrating strong resilience through economic cycles.

Core Profitability Remains Robust

In the first half of 2026, Lanzhou Bank reported operating income of RMB 4.179 billion, a year-on-year increase of 6.6%. Non-recurring net profit attributable to shareholders reached RMB 960 million, up 7.14% year-on-year. After stripping out non-recurring gains and losses, the bank's core lending business maintained an upward trend in real profitability.

The sustained non-recurring profit performance has strengthened the bank's endogenous cash-generation capacity from its core deposit and lending operations. Stable core business earnings have been converted into retained profits, providing a source for internal capital replenishment while reducing reliance on non-recurring income sources such as investment valuation fluctuations and asset disposals. This has enhanced the bank's ability to withstand external market disruptions.

Liability Structure Improvement Offsets Margin Pressure

The bank's liability side showed structural improvement, serving as a key lever to hedge against industry net interest margin (NIM) pressure and stabilize the earnings base. During the reporting period, amid a challenging NIM environment across the industry, Lanzhou Bank avoided engaging in price wars. Instead, it deepened its focus on corporate and retail core customer groups within Gansu Province, using refined deposit pricing strategies to continuously lower liability costs, thereby offsetting pressure from declining yields on interest-earning assets.

Key data points include:

• Deposit cost ratio: Continued decline, down 19 basis points (bps) from the beginning of the year, with personal deposit costs falling by 40 bps
• Deposit scale: Maintained the second-largest position in the province
• Total deposits: Remained stable, with personal deposits showing steady growth
• Retail customer base: Reached 7.327 million, a net increase of 142,800 from the start of the year

The decline in deposit cost ratios directly alleviated operational pressure from NIM narrowing, creating a buffer for core business profits. The rising share of personal deposits brought more stable, low-cost funding, providing ample ammunition for credit deployment.

Dual Reinforcement: Asset Quality and Capital Strength

The sustainability of commercial bank operations depends on the dual constraints and support of asset quality and capital strength. Over a five-year observation period, Lanzhou Bank's non-performing loan (NPL) ratio has shown an overall downward trend. As of June 30, 2026, the NPL ratio had fallen to 1.78%, continuing its decline from the beginning of the year. The provision coverage ratio stood at 191.69%, both indicators remaining above regulatory thresholds, providing a sufficient buffer against potential credit losses.

This performance reflects the steady implementation of the bank's risk control strategy. Lanzhou Bank has maintained a reasonable pace for new credit deployment while simultaneously advancing the identification and disposal of existing risk assets. Specifically:

• Asset quality improvement: Integrated throughout the entire credit process, with risk prevention moved to the front end of business operations
• New credit: Enhanced screening at the industry and customer level, with access controls implemented before credit approval, supported by continuous post-loan monitoring to minimize potential credit risks at the source
• Existing assets: Gradual mitigation of legacy asset pressure through regular inspections, collections, and disposals
• Technology: Implementation of a new-generation big data risk control platform enabling continuous monitoring of corporate operations and earlier detection of risk signals

This approach has allowed Lanzhou Bank to find a balance between business expansion and risk control, achieving balance sheet growth without increasing risk exposure.

Capital Adequacy

As of June 30, 2026, all three core capital indicators improved:

| Indicator | Level | Change from End-2025 | |-----------|-------|----------------------| | Core Tier 1 Capital Adequacy Ratio | 8.75% | +0.54 ppts | | Tier 1 Capital Adequacy Ratio | 10.19% | +0.61 ppts | | Capital Adequacy Ratio | 12.28% | +0.66 ppts |

All indicators remained above minimum regulatory requirements. Supported by internal accumulation from core business profitability and reasonable control over risk-weighted asset growth, the bank's capital safety margin has further increased, reserving ample space for real-economy credit deployment.

Development Path Rooted in Local Endowment

Credit allocation directly shapes a bank's business structure. For Lanzhou Bank, the advancement of various specialized businesses is grounded in Gansu's local industrial realities, directing financial resources toward genuine financing needs in the regional real economy.

Industry Finance

The bank aligns with Gansu Province's "14+1" key industrial chain construction, focusing on local pillar industries including non-ferrous metallurgy, energy, and equipment manufacturing. The service model extends beyond single-point credit to leading enterprises, using supply chain financing tools to extend service coverage to upstream and downstream supporting entities around core enterprises.

Green Finance

Leveraging Gansu's endowment in wind and solar resources and the practical scenarios of Yellow River Basin ecological protection, the bank has transformed regional resource advantages into business expansion opportunities. It continues to support new energy projects and green upgrades of traditional industries, with green credit achieving steady expansion and multiple green projects implemented in the first half of the year.

Sci-Tech Finance

The bank focuses on high-tech enterprises and specialized and new (专精特新) entities within Gansu Province, introducing supporting policies and specialized tools to alleviate financing difficulties faced by local technology enterprises in their operations.

Inclusive Finance in Counties

Fully leveraging its province-wide branch network coverage, the bank continues to extend services to county and rural markets. Agricultural loans and inclusive small and micro loans have maintained steady growth. Services targeting family farms, farmer cooperatives, and small and micro business entities in counties have further consolidated the bank's locally rooted business foundation.

Digital Transformation

Digital transformation provides the technological foundation for Lanzhou Bank's refined operations. In the first half of 2026, the bank advanced its "Feitian" and "Lanxin" projects, with digital capabilities gradually penetrating multiple business areas including credit risk control, deposit pricing, and customer tiered management to reduce costs, improve efficiency, and strengthen end-to-end risk identification capabilities.

Tangible Results

The effectiveness of this strategic layout is evident in key metrics as of June 30, 2026:

| Category | Balance (RMB) | Net Increase from Start of Year | Growth Rate | |----------|---------------|--------------------------------|-------------| | Green Loans | 19.792 billion | 1.870 billion | 10.43% | | Inclusive Small & Micro Loans | 16.056 billion | 583 million | Above bank average | | Agricultural Loans | 22.009 billion | — | — | | Sci-Tech Enterprise Loans | 18.551 billion | 1.880 billion | 11.28% |

The expansion of multiple specialized credit categories has allowed Lanzhou Bank to break away from homogeneous competition among peers, transforming regional resource endowments into business growth and solidifying its local customer base.

Conclusion

In the current environment, assessing the core competitiveness of regional banks is no longer simply anchored to growth rates. The weight given to a bank's local深耕 capabilities and refined operational level continues to rise. By translating these strategies into effective tactics, Lanzhou Bank has offered the market a new answer and perspective.

(Source: 21st Century Business Herald)