Fubon going back to basics after net dives 78pc

Fubon Bank (Hong Kong), a subsidiary of Taiwan financial conglomerate Fubon Financial, said it would review its cost structure and seek further integration with its parent company after earnings slumped 78 per cent last year.

Executive director and chief executive Li Jinyi expects market-related activities to remain weak and continue to drag on the bank's net fee and commission fee income. 'Like many other banks, we will be back to the basics this year and focus on driving the performance of our core deposit and lending businesses,' he said.

Net profit dropped to HK$100 million last year from HK$460 million a year ago on a 30 per cent decline in net fee and commission income. Net interest income grew 15.8 per cent as interest margins improved from 1.65 per cent to 1.76 per cent.

The bank recognised a revaluation loss of HK$128 million on collateralised debt obligation (CDO) investments and an impairment loss of HK$197 million on exposure to structured investment vehicles (SIVs) and other equity securities. The residual value of the CDOs and SIVs were HK$13.6 million and HK$16.6 million as of December 31.

Impairment charges on loans surged more than eight times to HK$309 million amid the weakening economic conditions.

'Most of the increase was due to higher individual impairment losses on corporate and [small and medium-sized enterprise] loans,' said Michael Chang Ming-yuen, the bank's executive director. 'The rising provisions are to strengthen the bank's balance sheet and put the bank in a stronger position to weather asset quality risks ahead.'

The bank refused to disclose how much provision it had set aside for the potential claims against the now almost worthless Lehman Brothers minibonds that it sold.

Mr Li said the contribution from Taiwan-related business, Fubon's target customer group, shrank from 34 per cent to 27 per cent as a result of falling demand for wealth management services. 'The situation could hardly improve if investors continue to lose interest in wealth management business,' he said.

Lee Yuk-kei, a senior analyst at Core Pacific-Yamaichi International, said non-performing loans were set to rise as many of the bank's corporate clients came from Taiwan.

The bank proposed a final dividend of 1.5 HK cents per share. Its shares fell 1.1 per cent yesterday to HK$1.79.