Bank of China

BOC books US$198m in US subprime losses

PUBLISHED : Tuesday, 29 April, 2008, 12:00am
UPDATED : Tuesday, 29 April, 2008, 12:00am

Profit rises 85pc to 21.7b yuan, beating estimates

Bank of China, the nation's third-largest lender, set aside US$198 million for subprime investments in the United States in the first quarter but still reported a better than expected 85.15 per cent growth profit.

The impairment loss was booked following the US$1.3 billion provision it made last year, and analysts are expecting more could be made because of the uncertain market.

'Given the continued market volatility, there could potentially be a need to make a provision in the future,' said Merrill Lynch in a research report.

BOC trimmed its US subprime asset-backed securities to US$4.43 billion at the end of last month, compared with US$5 billion at the end of last year, according to a filing with the Hong Kong stock exchange yesterday.

The carrying value of its US subprime investment equalled 1.82 per cent of the group's investment portfolio, down from 2.1 per cent in December last year.

'The group will continuously follow developments in the US mortgage market and assess the impairment on related debt securities in a prudent manner in accordance with accounting standards requirements,' the bank said.

It said net profit in the first quarter rose to 21.7 billion yuan (HK$24.16 billion) from 11.72 billion yuan a year earlier, thanks to strong growth in net interest income, fee-based businesses and lower taxes.

Net interest income grew 18.74 per cent to 40.82 billion yuan from 34.37 billion yuan, and net fee and commission income jumped 82.93 per cent to 9.45 billion yuan.

Thanks to the unified corporate income tax rates for domestic and foreign firms, it paid 7 billion yuan in taxes in the first quarter, 40 per cent less than in the same period a year earlier.

Ivan Li Sing-yeung, an analyst with Kim Eng Securities, said the earnings were above expectations, since BOC had a relatively low business efficiency level in the industry.

BOC's loans and advances to customers grew 7.98 per cent in the first quarter. By comparison, China Construction Bank Corp's rose 5.07 per cent and China Merchants Bank delivered a 4.5 per cent increase.

'The bank has enjoyed faster loan growth than its peers due to a higher proportion of foreign lending from its subsidiary, Bank of China (Hong Kong),' Mr Li said.

The mainland banking regulator has asked domestic banks to limit new yuan lending at the same level as last year in an effort to cool the economy and tame inflation. But overseas Chinese lenders such as BOC Hong Kong (Holdings) and ICBC (Asia) are not subject to the restrictions.

BOC's Hong Kong subsidiary, BOCHK, yesterday said operating profit before impairment allowances increased to HK$5.26 billion in the first quarter from a year earlier, although it did not provide comparative figures. Operating profit dropped from the previous quarter, the bank said.

Bank of China shares rose 0.52 per cent to HK3.89 while BOCHK climbed 1.12 per cent to HK$19.82.