Bank of Communications

Bocom posts 31pc profit rise; warns on bad loans

PUBLISHED : Friday, 28 October, 2011, 12:00am
UPDATED : Friday, 28 October, 2011, 12:00am


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Bank of Communications, the mainland's fifth-largest lender, posted a 31 per cent jump in profit for the third quarter, driven by a higher net interest margin and soaring fee-based income.

But the Shanghai-based lender, in which HSBC owns a 19 per cent stake, admitted that rising disputes on home prices between developers and buyers would result in increasing non-performing mortgage loans.

The bank said it earned 12.02 billion yuan (HK$14.65 billion) in the three months ended on September 30, up from 9.18 billion yuan a year earlier.

The quarterly performance met analysts' expectations.

Net interest margin grew 0.14 percentage points from the same period last year, hitting 2.58 per cent.

That translated into 2.58 yuan of income, minus deposit expense, for every 100 yuan of credit it extended.

Total net interest income in the quarter jumped 23 per cent year on year to 26.6 billion yuan. It raked in fees and commissions of five billion yuan, up 41 per cent from the same period a year ago.

Bocom joined bigger rivals such as Industrial and Commercial Bank of China and Agricultural Bank of China in reporting handsome third-quarter profits.

The bank's non-performing loan ratio stood at 0.94 per cent at the end of September, compared with 1.12 per cent at the beginning of this year.

Executive vice-president Qian Wenhui said the bank would monitor the slumping property market because it could lead to an increase in mortgage loan defaults.

'It is expected that some homebuyers, angry with falling property values, will delay repayment of their mortgage loans,' he said, adding that the total amount would likely be small.

A rising number of property buyers have protested against the developers of their units following big price cuts on unsold apartments, seeking refunds as Beijing's austerity measures on the sector took effect.

Qian said the bank's loans to property developers accounted for 6.2 per cent of its total lending, or 152 billion yuan. 'We are not exposed to huge risks [as a result of a potential collapse in the property sector] if the percentage of development loans is controlled below 8 per cent,' he said.

The outstanding value of Bank of Communications' loans to local government financing vehicles (LGFV) stood at 257.4 billon yuan with 0.18 per cent turning sour.

Mainland banks issued more than nine trillion yuan of credit to the financing arms to support the government's four trillion yuan stimulus package designed to boost infrastructure spending introduced during the last financial crisis.

The China Banking Association estimated that 70 per cent of the LGFV loans were unlikely to be fully repaid.

Analysts warned that the problem had yet to be solved since more loan defaults would surface in the coming years.

'Banking stocks are not attractive to investors despite their fast earnings growth,' said Guotai Junan Securities analyst Bian Fengwei.

'Their earnings are mostly driven by interest income based on continuous refinancing deals to replenish their loan extensions.'

4.3tr yuan

The total assets, in trillions of yuan, held by Bank of Communications as of September 30