Bocom profit slows as loan losses leap by a third

Bank of Communications (Bocom), the mainland's fifth-largest lender by assets, said net profit climbed 11.5 per cent in the first quarter but impairment losses on loans and advances surged by more than a third year on year.

The profit growth at Bocom, where HSBC has a stake of 19 per cent, was a further slowdown from the 15 per cent reported for the whole of last year. Mainland banks are grappling with fierce competition amid interest rate liberalisation and mounting default risk.

Qian Wenhui, executive vice-president at Bocom, which is based in Shanghai, said: "The quality of loans need to be closely watched this year due to the economic downturn. It won't be unusual that some companies will grapple with cash strain or even run out of cash."

Over the quarter, Bocom's non-performing loan ratio rose 0.05 percentage points to 0.97 per cent while provision coverage of impaired loans dropped 18.59 percentage points to 232 per cent. Impairment losses on loans and advances totalled 5.1 billion yuan (HK$6.35 billion) in the quarter, up 34 per cent year on year, according to the bank's financial report yesterday.

Local-currency loans by domestic operations grew 4.5 per cent over the quarter, with corporate loans concentrated in sectors including manufacturing, retail and transport.

Almost a third of the bank's credit customers were in the Yangtze River Delta, the bank said. The region has recently been singled out by many mainland bankers because of the rising risk of default among struggling exporters and borrowers saddled with overcapacity problems. Qian said the increase in bad loans was mainly in the eastern provinces of Zhejiang and Jiangsu, where exporters and importers were among the major defaulters. He said the bank was targeting a 1 per cent NPL ratio.

Bocom shares were unchanged at 4.65 yuan in Shanghai trading yesterday before the financial results were released, but rallied 2 per cent to HK$6.03 in Hong Kong.