Write-downs, bad debts hurt Dah Sing results

PUBLISHED : Thursday, 26 March, 2009, 12:00am
UPDATED : Thursday, 26 March, 2009, 12:00am

Dah Sing Banking Group, a medium-sized Hong Kong lender, reported a net loss of HK$328.05 million in the second half of last year due to a surge in bad-debt provisions and a substantial write-down on securities investments.

The bank said asset quality was likely to continue to deteriorate during the remainder of the first half of this year.

Despite the second-half loss, the bank posted net income of HK$188.64 for the full year, although profits were down 76.42 per cent from a year earlier.

Earnings at the bank's parent company, Dah Sing Financial Holdings, plunged 89.9 per cent to HK$106.19 million last year after a loss of HK$271.73 million in the second half.

No final dividends were declared by either company.

The bank's bad-debt provisions jumped 264 per cent last year to HK$658.53 million, while its impaired loan ratio rose to 1.7 per cent from 0.46 per cent. The bank also took HK$655.3 million in write-downs on its securities investments.

Derek Wong Hong-hing, the managing director of both companies, said it was hard to predict earnings this year.

'The asset quality in commercial banking will continue to deteriorate in the first half of this year,' he said.

However, he said he hoped the situation would improve since the mainland economy was still growing, though at a slower pace.

Mr Wong also said he was concerned that loan quality in retail banking would also worsen owing to the economic slowdown and rising unemployment.

Steven Chan, an analyst at Daiwa, said the bank was likely to return to profitability in this year's first half. 'Bad debt is expected to continue to climb, but it could be at a slower pace,' he said.

Mr Chan noted that the management had indicated the situation had improved slightly this year after the mainland introduced measures to stimulate the economy.

He said further substantial write-downs for securities investments were unlikely, and the bank would benefit from a strong capital ratio after an injection from its parent.

Dah Sing Banking said it had redeemed US$52 million in subordinated debt from its parent last year. Dah Sing Financial in turn agreed to inject HK$1 billion into the bank through a loan arrangement to boost the bank's capital.

Analysts said another source of uncertainty was whether the bank needed to make substantial provisions for potential settlements to minibond investors.

Impaired assets

A HK$328.05 million loss in the second half led to a decline in full-year profit of: 76.4%