Bocom earns 7.2b yuan as loan demand falters
Bank of Communications, the mainland's fifth-largest lender, yesterday said its third-quarter earnings growth slowed as demand for loans waned.
The results came as analysts warned that the operating environment would become tougher amid a bearish stock market, rising default rates and shrinking interest margins.
Bocom, about 20 per cent owned by HSBC Holdings, said it earned 7.21 billion yuan (HK$8.19 billion) between July and last month, up 21.66 per cent from a year earlier - a stark contrast to the 81.21 per cent year-on-year profit jump seen in the first half.
For the first three quarters, Bocom's profit rose 56.84 per cent to 22.72 billion yuan.
Mainland banks are facing deteriorating asset quality and slowing profit growth as the country grapples with a global economic downturn and weaker domestic market.
Net interest margins are also set to fall as Beijing has cut lending rates three times in a month, and analysts expect it to lower rates further to fuel economic growth.
China International Capital Corp forecasts that commercial banks' net interest margins will drop a further 29 basis points next year.
'Bocom is smaller than other competitors such as Industrial and Commercial Bank of China, China Construction Bank and Bank of China, which means it has limited room to choose clients and will face more pressure on loan quality,' said Dorris Chen, a BNP Paribas analyst.
Bocom's loans to manufacturers accounted for 26.9 per cent of total lending by the end of June, higher than levels at Construction Bank and ICBC.
'Loans to the manufacturing sector account for nearly 27 per cent of its total loans, the highest among big banks,' CICC said in a report. 'As China's economy is slowing down, its risk [of bad loans] is higher than the peers.'
The bank set aside 5.94 billion yuan to cover bad loans, up from 4.87 billion yuan a year earlier.
'We feel increasing pressure [to maintain profit growth],' said chief financial officer Yu Yali. 'If the stock market is still stuck in a downward spiral, we will pay more interest for the massive deposits.'
At the end of last month, Bocom held foreign bonds worth US$4.77 billion, or 1.3 per cent of its total assets, including those issued by failed US investment bank Lehman Brothers Holdings.
'The risk exposure is relatively low because of our cautious attitude towards overseas investments,' said vice-president Qian Wenhui.
Bocom reported a capital adequacy ratio of 13.77 per cent at the end of last month, down from 14.44 per cent at the end of last year.
Bocom shares yesterday rose 15.31 per cent to close at HK$4.67.
Hard going
Bocom's year-on-year earnings growth for the quarter to September slowed to: 21.7%
