Bocom net surges on tax break

PUBLISHED : Wednesday, 29 March, 2006, 12:00am
UPDATED : Wednesday, 29 March, 2006, 12:00am

Mainland lender beats market forecasts with a 476pc jump in profit to 9.24b yuan

Bank of Communications (Bocom), China's fifth-largest commercial lender, has ridden a tax break to beat market forecasts and post an almost sixfold rise in net profit to 9.24 billion yuan.

The Shanghai-based lender's income tax cost for the 12 months to December last year fell 41 per cent to 3.6 billion yuan, despite a 65.7 per cent surge in pretax profit to 12.84 billion yuan.

That offset a drag from exchange losses and falling market yields, and left a bottom line outcome of 9.24 billion yuan, above a mean estimate of $8.57 billion from 20 brokers polled by Thomson Financial on Monday.

Actual reported earnings grew 476.6 per cent from a year earlier, when the bank was slapped with an unusually large tax bill after the disposal of a large chunk of impaired loans forced the reversal of earlier tax credits.

The Ministry of Finance and the State Administration of Taxation last month increased Bocom's tax-deductible staff cost to 3.31 billion yuan, contributing 1.05 billion yuan of the 2.55 billion yuan total income tax reduction for the company.

Higher tax-deductible staff costs would also apply in future years, Bocom's chief financial officer Yu Yali said at a press briefing to announce the results yesterday.

Bocom's net interest income rose 25.4 per cent to 31.59 billion yuan as a faster than industry average 20.52 per cent loan growth lifted its loan-deposit ratio to 63.45 per cent at the end of the year.

Net interest margin - the ratio of net interest income to average interest-earning assets - rose 0.05 percentage point from a year ago to 2.64 per cent, but fell from 2.7 per cent in the first half of last year.

The interest margin came under pressure in the second half from falling domestic money market rates, a result of excess liquidity from banks and other financial institutions.

A higher percentage of time deposits also raised Bocom's interest costs, Ms Yu said.

Tightening risk control last year trimmed the bank's non-performing loan ratio by a further 0.54 percentage point to 2.37 per cent.

The lender's non-interest income would have risen by 61 per cent to 4.45 billion yuan without an 890 million yuan exchange loss from converting its $16.8 billion initial public offering proceeds into yuan after the currency's 2.1 per cent revaluation in July.

The exchange, which had been completed by October, nevertheless 'averted further exchange losses', Bocom president Zhang Jianguo said.

Bocom chairman Jiang Chaoliang yesterday denied the National Social Security Fund (NSSF), the bank's third-largest shareholder, planned to sell its 12.37 per cent holding after the expiry of the one-year lock-up period imposed by the Hong Kong stock exchange. NSSF recently opened an account at the Hong Kong stock clearing house to become an active market player.

'I don't believe NSSF will sell down its shares,' he said. 'A strategic investor usually retains its holdings for five years or more.'

Bocom declared an eight fen final dividend, or about 36 per cent of its 22 fen earnings per share.

The bank's shares ended the day down 1.5 per cent at $4.925 before yesterday's announcement.