The pond is safer for bottom feeders

PUBLISHED : Friday, 28 July, 1995, 12:00am
UPDATED : Friday, 28 July, 1995, 12:00am

ALL those analysts seeking insight into Hong Kong's banking sector from the interim results of the Bank of East Asia can keep looking.

The bank did turn in a respectable improvement in profit, lifting after-tax returns by 28.5 per cent to $687.01 million, from the previous corresponding period's result of $534.81 million.

Its loans and advances before provisions increased by 18.3 per cent over the period to $47.06 billion, compared with the same time last year.

Customer deposits increased by 12.2 per cent to $66.35 billion, lagging loans and advances before provisions.

Interestingly, its operating expenses outstripped inflation in the first half.

They increased by 22.9 per cent to $584.8 million, from $475.8 million in the same period in 1994.

The bank's other operating income rose by 8.1 per cent, while interest expenses rocketed 66 per cent to $2.05 billion, from $1.23 billion in the first six months of 1994.

According to DBS Securities' Anthony Lok, the bank has boosted its trade bills by 54.8 per cent, probably at the expense of the territory's two biggest banks - but they probably would not notice the loss.

Its loan expansion means that its loan-to-deposit ratio is rising steadily and it may find it harder to maintain momentum in the second half of 1995.

Mr Lok said the bank may find itself with two choices in terms of maintaining profit momentum. First, it can continue to lend money at the same rate it did in the first half, which means it will have to chase after deposits - or issue certificates of deposit - and see its margins trimmed.

Second, it can slow down its lending, which is probably the more likely scenario.

Neither one is likely to appeal to one of the top four banks in the territory.

The trouble is that it is very likely to be tougher at the top end of the market than down the bottom.

Mr Lok said he was looking for growth in assets and profits among the smaller banks in Hong Kong - those banks which were well managed, had good assets, and niche businesses.

They were more flexible than the big banks, whose size made them slower to respond to changes in the banking environment.

Big banks would make targets of their peers, not the tiddlers.

'The top end is going to be a lot bloodier,' Mr Lok said.