Bank of China's profits rise on strong fee growth
But expansion slows as impairment losses and interest rate deregulation eat into bottom line
Bank of China, the nation's fourth-largest lender by assets, said net profit rose 8.2 per cent in the first quarter but impairment losses surged by more than half.
In the January-March period, net earnings rose to 39.8 billion yuan (HK$49.5 billion) from 36.8 billion yuan a year ago, thanks to improved lending profitability and robust growth in fee and commission businesses. Hong Kong-listed mainland banks reporting interim results this week are expected to post earnings growth of 7 to 11 per cent, a significant deceleration from the average 24 per cent seen a year ago. The fall comes as mainland economic growth slows and steps towards interest rate deregulation erode banks' profits.
Impairment losses on assets skyrocketed 50.9 per cent year on year to 8.26 billion yuan in the first quarter, even after a net reversal of impairment losses on debt securities of 112 million yuan, "due to an increase of domestic impairment losses on loans", the bank said in a stock exchange filing yesterday.
The impairment losses on loans and advances totalled 8.283 billion yuan in the first three months, the bank said, without providing comparative figures in the report.
Non-performing loans (NPL) stood at 66.4 billion yuan at the end of March, up from 65.5 billion yuan at the end of last year.
The NPL ratio dropped 0.04 percentage points to 0.91 per cent, as local-currency loans grew 4.02 per cent over the quarter.
The bank was among the hardest hit by defaults of solar technology companies last year in the Yangtze River Delta as they reeled from overcapacity and anti-dumping rulings by Western governments.
BOC shares rose 0.6 per cent in Hong Kong to close at HK$3.53 before the results were announced yesterday. The stock remained unchanged at 2.9 yuan in Shanghai trading.
Net interest margin, a key measure of lending profitability, increased by 0.07 percentage point to 2.22 per cent over the quarter, helping the bank's net interest income to grow 10.5 per cent year on year to 66.96 billion yuan in the first quarter.
Net fee and commission income rose 16.9 per cent to 24.73 billion yuan, beating analysts' expectations of 23.9 billion yuan.
At the end of March, the capital adequacy ratio (CAR) had dropped 0.4 percentage point from the end of December to 13.23 per cent, while core CAR was down by 0.21 percentage point to 10.33 per cent. Mainland banks are under pressure to transform their business model of heavy reliance on lending as stricter capital rules set in.