Bank of China

BOC net profit rises 16.6pc to beat market forecasts

Mainland bank posts profit of 34.8 billion yuan for quarter but analysts say slowing economy and tighter interest margins cloud prospects

PUBLISHED : Friday, 26 October, 2012, 12:00am
UPDATED : Friday, 26 October, 2012, 3:38am

Bank of China, the fourth-largest mainland bank by market value, beat market forecasts with a 16.6 per cent increase in third-quarter net profit from a year ago, but analysts say the slowing economy and tightening interest margins will weigh on earnings in coming quarters.

Meanwhile, BOC Hong Kong (Holdings), the overseas arm of BOC, reported growth of 1.6 per cent in net operating income before impairment allowances in the third quarter from the same period last year to HK$8.93 billion.

BOC, the first mainland bank to report third-quarter results, said net profit for the three months to September rose to 34.76 billion yuan (HK$43.16 billion) from 29.81 billion yuan a year ago, and was little changed from 34.84 billion yuan in the second quarter.

The median estimate of 10 analysts surveyed by Bloomberg was for a profit of 32.7 billion yuan in the third quarter.

Earnings at other large mainland banks' might be stronger than analysts' estimates because of higher net interest margins and a recovery in fee income that was suppressed by regulatory crackdowns, said Bill Stacey, an analyst at Keefe, Bruyette & Woods. "But the smaller banks could still suffer from low margins," he said.

BOC said in a statement to the Hong Kong stock exchange net profit reached 106.36 billion yuan in the first nine months of the year, an increase of 10.4 per cent from the same period last year.

The higher quarterly earnings were driven by a 14.5 per cent increase in net interest income to 65.39 billion yuan.

Loans and advances rose 9.1 per cent to 6.92 trillion yuan at the end of last month from a year earlier.

Net interest margin, the spread between what banks earn from lending and their funding costs, stood at 2.12 per cent - an increase of 0.02 percentage point from the end of June.

Net fee and commission income dropped 1.1 per cent to 15.68 billion yuan in the third quarter from a year earlier.

Non-performing loan ratio stood at 0.93 per cent at the end of last month, slightly lower when compared with end-June, but the amount of non-performing loans grew 0.8 per cent to 64.1 billion yuan.

The bank made 4.39 billion yuan in loan provisions in the third quarter, an increase of 11.1 per cent from a year earlier.

Core adequacy ratio improved to 13.16 per cent from 12.98 per cent.

Chen Xingyu, an analyst with Phillip Securities in Shanghai, said the non-performing loan ratio would continue to increase in the coming quarters because of the weaker economy and profit growth would slow until the first quarter of next year.

BOCHK said net operating income before impairment allowances in the first nine months rose 19.9 per cent to HK$27.1 billion, compared with the same period last year, on the back of higher net interest income and net trading gain.

Net interest income, mostly related to lending business, improved mainly because of the return on the yuan business and the growth in higher yielding loans.

Adam Chan, a senior analyst at CCB International, said BOCHK's non-performing loan ratio should have stabilised at about 0.1 per cent in the third quarter, and he expects the bank's net interest margin to continue to improve next year.

BOC shares rose 0.96 per cent to close at HK$3.15 yesterday while BOCHK edged up 0.41 per cent to HK$24.45.