Concerns grow over BOCHK as earnings soar

Lender counts on yuan businesses amid margin pressure and slowing increase in revenue

PUBLISHED : Wednesday, 27 March, 2013, 12:00am
UPDATED : Wednesday, 27 March, 2013, 4:32am

Earnings at Bank of China (Hong Kong) hit a record last year, but analysts are concerned about margin pressure and weaker revenue growth.

Net profit rose 2.4 per cent to HK$20.9 billion. Of this, HK$9.6 billion came in the second half of the year, 13.8 per cent less than in the first half.

Excluding adjustments for provisions related to Lehman Brothers products, full-year earnings jumped 14.9 per cent.

The bank declared a final dividend of 69.3 HK cents per share.

Net interest margin contracted, a Barclays report noted. Net interest margin, the difference between loan income and the cost of funds relative to interest-earning assets, fell 0.04 percentage point to 1.6 per cent at the end of last year from six months earlier. Chief financial officer Zhuo Chengwen expects it to remain stable this year, given no significant change in the economy.

Revenue was helped by one-off trading gains, a UBS report said, but growth was slowing.

Both Singapore and Taiwan have started offshore yuan-clearing services, and BOCHK is no longer the sole yuan-clearing bank in the region. Asked if the bank was losing its niche, chief executive He Guangbei said Hong Kong had the first-mover advantage but the firm "will take measures to improve [its clearing services] when necessary".

One of the measures it has taken is to raise the interest rate on yuan deposits placed with it by other banks.

Deposits grew 7.2 per cent last year, mainly in Hong Kong dollars and US dollars. Loans increased 11.3 per cent, while those denominated in yuan jumped 200 per cent from a year before. He expected continued robust growth in such loans as rules on the use of the yuan were relaxed.

BOCHK's application to join the renminbi qualified foreign institutional investor scheme is pending approval.

The bank's mortgage lending grew 9.9 per cent last year. After the 0.25 percentage point rise in its mortgage lending rate last week, deputy chief executive Jason Yeung Chi-wai said the bank did not expect another adjustment in the short term.

The capital adequacy ratio remained robust at 16.8 per cent. The impaired-loan ratio jumped 1.6 times to 0.26 per cent. Zhuo said the increase was due to provisions for individual borrowers and he expected no significant deterioration of credit quality.