BOC profit soars to record but bad loans raise fears
Bank of China, the mainland's fourth-largest lender by market value, posted record net profit for last year, but an increase in bad loans in the past quarter stoked fears its asset quality and earnings outlook are deteriorating.
The bank earned 124.18 billion yuan (HK$152.94 billion) last year, up 18.9 per cent from 2010, buoyed by a higher net interest margin and soaring fee-based income.
The results met analysts' expectations but lagged behind the 26 per cent profit growth reported by bigger rival Industrial and Commercial Bank of China.
BOC's non-performing loans in the fourth quarter rose 1.4 billion yuan. Analysts described it as a bad sign, predicting bad debts would continue to grow this year.
By the end of December, non-performing loans were valued at 63.3 billion yuan and the bad-loan ratio climbed to 1 per cent from 0.99 per cent in the preceding quarter.
Core capital adequacy ratio stood at 10.07 per cent, above the 9.5 per cent minimum requirement likely to be implemented by the mainland banking regulator on July 1.
'Bad loans are set to increase although all signs are showing the risks are still controllable,' said MasterLink Securities analyst Rainy Yuan. 'Its performance this year will decline sharply as bad loans eat into its profits.'
Mainland banks extended a total of 18 trillion yuan in credit in 2009 and 2010 amid a lending spree to support the country's infrastructure-focused stimulus package.
It was estimated that a big portion of the loans would turn sour this year as some of the projects would not be able to generate enough cash to pay back the debts.
BOC said net interest margin was 2.33 per cent last year, up 6 basis points on the year.
Net interest income, the difference between interest received and paid, grew 17.6 per cent to 228.06 billion yuan.
BOC's A shares slipped 0.34 per cent to 2.92 yuan while its H shares fell 1.91 per cent to HK$3.08 yesterday ahead of the announcement.
All major mainland banks showed robust profit growth last year as the central bank's interest rate increases resulted in a higher interest margin.
As the economy slows this year in tandem with Beijing's curbs on the property sector, loan demand will shrink, affecting the lenders' profitability.
BOC will pay a dividend of 15.5 fen a share.
Separately, subsidiary BOC (Hong Kong) said net profit climbed 26.1 per cent last year to a record HK$20.4 billion.
Chief executive He Guangbei said demand for yuan loans picked up in the second half of last year.
Its non-performing loan ratio fell 4 basis points to 0.1 per cent at the end of last year.
Chief financial officer Zhuo Chengwen said the bank's asset quality remained healthy although it made an increasing provision to cover potential bad loans.