Bank of Communications, the first leading mainland bank to report last year's earnings, expected a tough time ahead this year amid the global financial crisis as it announced a 40 per cent increase in last year's profit.
'The impact of the financial turmoil on the global economy is expected to worsen in 2009,' chairman Hu Huaibang said at the lender's results briefing in Hong Kong yesterday. 'The domestic banking industry is also expected to face major challenges with the spreading financial turmoil and the macroeconomic slowdown.'
The fifth-largest mainland lender, of which HSBC Holdings owns 19 per cent, reported a net profit of 28.39 billion yuan (HK$32.2 billion) for the year to December, up 40.05 per cent on the previous year and at the high end of analysts' estimates.
Earnings were driven by a 20.29 per cent increase in loans to customers and a 22.1 per cent rise in net interest income. However, those were partly offset by provisions against potential bad loans.
The bank set aside 2.01 billion yuan as special provision for the financial turmoil, lifting such expenses by 3.84 billion yuan from 2007. Loan-by-loan provision expense increased 383 million yuan.
Provision coverage after deducting general reserves and tax rose to 116.83 per cent of impaired loans from 113.84 per cent at the end of September, and up 21.2 percentage points from the beginning of last year.
The coverage, however, was still lower than the minimum 130 per cent level the China Banking Regulatory Commission has asked lenders to meet to better cushion against default risks amid the downturn.