Dao Heng gains slump as provisions soar 280pc
Recession has forced Dao Heng Bank to increase its loan-loss provisions charge by more than 280 per cent in the six months to December 31, pushing interim attributable profit down 38.38 per cent to HK$506.16 million.
Most of the decline came from the rapid increase in loan-loss provisions from HK$144.22 million in 1997 to HK$550.13 million, of which HK$541 million were specific provisions.
The bank blamed larger problem loans in its trade finance, taxi finance, corporate, mainland and credit-card portfolios for the rapid decline in asset quality.
Loans overdue for more than three months jumped to HK$2.36 billion from the previous HK$831.27 million.
These were covered by HK$1.61 billion in value of collateral held and HK$560.18 million in specific provisions, equivalent to a coverage ratio of 91.8 per cent.
The ratio of overdue loans to total loans rose to 3.61 per cent from 1.25 per cent a year ago.
Besides rising loan losses, Dao Heng also faced increasing pressure from the volatile interest rate environment in the second half of last year.
Interest income was up 4.62 per cent to HK$5.1 billion.
This growth, however, failed to match the more rapid 9.29 per cent increase in interest expenses to HK$3.86 billion. This resulted in a 7.58 per cent decline in net interest income to HK$1.24 billion.
A one-off HK$152 million net gain from the early redemption of US$81 million of the bank's US$350 million in subordinated debt boosted non-interest income to HK$621.73 million, up 27.63 per cent from 1997.
This also helped boost pre-provisions operating profit by a modest 3.07 per cent to HK$1.14 billion.
Reflecting slack demand for new credit and the bank's 'judicious' risk appetite, loans before provisions declined 0.78 per cent to HK$65.35 billion. Customer deposits grew 1.95 per cent to HK$101.46 billion.
This generated a pre-provisions loan-to-deposit ratio of 64.4 per cent, down from 66.1 per cent in 1997.
Only 0.84 per cent of Dao Heng's assets were exposed to mainland-related customers, of which about 44 per cent was covered by security and less than $30 million was granted to the international trust and investment corporations.
The bank warned the industry's problem loans would continue to rise this year while revenue growth opportunities would be restrained.
Earnings per share fell to 73 cents from HK$1.17 while interim dividend was unchanged at 25 cents a share.