Bigger lending margins help push up Bocom's first-quarter results
Daniel Ren in Shanghai
Bank of Communications (Bocom) reported a 27 per cent net profit rise for the first quarter of this year thanks to higher lending margins and soaring fee-based income.
The mainland's fifth-largest lender earned 13.28 billion yuan (HK$15.8 billion) net profit between January and March, up from 10.45 billion yuan a year earlier.
The first-quarter performance beat analysts' expectations of about 12.7 billion yuan.
The bank raked in interest income of 23.74 billion yuan, up 24.7 per cent.
'[Our] net interest margin has been expanding and it is expected to increase further amid higher interest rates,' chief financial officer Yu Yali said. 'But the central government's efforts to curb lending growth will affect the company's performance for the rest of the year.'
Bocom granted new loans worth 104.8 billion yuan in the first three months, 70 billon yuan down on the year-earlier period.
Its net interest margin widened by 10 basis points to 2.51 per cent.
The Shanghai-based bank, in which HSBC Holdings owns an 18.6 per cent stake, reported fee-based income of 4.96 billion yuan, up 42.87 per cent year-on-year.
Mainland banks have grown rapidly over the past two years, powered by a lending spree.
However, Beijing started tightening oversight of lenders in the second half of last year prompted by worries of mounting bad loans.
Bocom said it had been cautious in lending to real estate developers and financing vehicles owned by local governments. Instead, it had increasingly granted new loans to small companies and individuals.
Mainland lenders gave easy credit to state-owned firms over the past two years to fund massive infrastructure project in line with the national stimulus package, while many small businesses were unable to secure bank loans.
At the end of March, Bocom reported non-performing loans of 24.7 billion yuan, or 1.05 per cent. This compares with a bad-loan ratio of 1.12 per cent at the end of 2010.
Bocom has set aside 48.88 billion yuan to cover potential bad loans, 5.5 per cent more than at the end of 2010.
Its capital adequacy ratio stood at 12.05 per cent at the end of March.
Bocom's first-quarter profit growth lagged larger rivals such as Industrial and Commercial Bank of China that posted a 29 per cent rise in net income.
Yu said banks would deliberately restrain lending growth because Beijing would continue to tighten monetary policies to tame stubborn inflation.