Tencent booked a drop in Q2 profit on reduced investment returns, while noting headwinds in mobile gaming and the impact of new regulation on mobile payments.

Profit attributable to equity holders was CNY17.9 billion ($2.6 billion), a 2 per cent fall year-on-year, which it attributed to lower gains from outside investments. Reuters reported it was the first decline in profit at the company for 13 years.

Despite higher usage of its mobile payments services (average daily transaction figures were up 40 per cent year-on-year), Tencent said revenue from the division and gross margins were negatively impacted by new regulation from the People’s Bank of China (PBC).

Rules on moving user deposits into a central clearing house announced by PBC in 2017 have been gradually introduced. In April, companies were required to transfer 42 per cent of funds to the central clearing facility: this increased to 52 per cent last month and will eventually reach 100 per cent.

Previously, these funds could be used to generate interest for payment providers until withdrawn by customers.

Tencent said it was “seeking to mitigate the impact through various monetisation initiatives elsewhere in our payment and related financial services.”

Revenue specific to mobile payments is not broken out and is included in Tencent’s “other” reporting segment alongside cloud services. In Q2, the unit recorded 81 per cent year-on-year revenue growth to CNY17.5 billion.

Tencent’s mobile gaming division, which distributes hit titles including Honour of Kings and League of Legends, recorded increased user numbers and engagement rates both in China and overseas, but was impacted by “transient factors”.

While mobile game revenue increased 19 per cent year-on-year to CNY17.6 billion in Q2, the figure was down 19 per cent sequentially. Tencent noted the limits on performance in the recent period had been due to “non-monetisation of popular tactical tournament games” and the release of new titles being loaded towards the end of the quarter.

Tencent added it would seek to “reinvigorate our mobile game revenue growth, via initiatives including deepening engagement with our existing major titles, monetising the proven popularity of tactical tournament games, launching a broader range of games in high-ARPU categories (such as the RPG genre), and increasing contributions from publishing our China-developed games internationally.”

It noted the changes would take months to implement.

After the end of the quarter, Tencent’s mobile gaming unit was dealt a new blow by authorities in China when Monster Hunter: World was banned for not meeting regulatory requirements.