Bank of East Asia profit expected to drop 13pc in first half
One-off items last year and increased exposure to bad loans on the mainland are blamed for the decline in the lender's earnings
Bank earnings season begins tomorrow with Bank of East Asia expected to report a 13 per cent decline in first-half net profit because of one-off gains last year and increased exposure to bad loans on the mainland.
Credit quality was expected to have deteriorated at the lender because of its mainland subsidiary, BEA (China).
"This is both a function of slower economic growth on the mainland as well as BEA's engaging in higher-yielding loans, given [its] higher funding costs relative to large [mainland] players," said Adam Chan, an analyst at CCB International. He estimated the bank would post first-half net profit of HK$2.6 billion.
Deutsche Bank also said it was concerned about the future asset quality at BEA. It estimated the bank was lending at an average interest rate of 7 per cent and that loans exposed to property accounted for 30 per cent of all its loans.
Market participants said BEA's larger exposure to the mainland would weigh on its share price, given the slowdown in economic growth there.
Barclays estimated BEA's first-half earnings at HK$2.62 billion. It said lower funding costs in the city were likely to offset declines at the mainland unit.
"In general, Hong Kong banks' asset quality on the mainland is likely to turn sour, but the fundamentals of their local businesses is still sound," said a banking analyst who declined to be named.
Over the past six months, the banking industry in Hong Kong has enjoyed a wider interest margin because of lower funding costs and strong corporate loan growth, mostly trade-finance-related, Barclays said.
The Hong Kong Monetary Authority has been watching the rapid growth of credit in the second quarter. It ordered banks to step up credit controls to manage risk.
The potential suppression of non-mortgage loans and stricter measures for mortgage loans may lead to loan books shrinking in the second half.
In March, the HKMA raised the capital requirements for new mortgage loans for the eight local banks that do internal ratings to 15 per cent of the value of the loan, up from 10 per cent.
China International Capital Corporation forecast Hang Seng Bank would report a 20 per cent fall in net profit to HK$7.4 billion in the first half. The bank will release its results on Monday along with its parent, HSBC.
BOC International said it expected the lender to report a 37.6 per cent rise in first-half net profit to HK$12.8 billion.
Bank of East Asia August 1
DBS August 1
HSBC August 5
Hang Seng Bank August 5
Standard Chartered August 6
Chong Hing Bank August 7
Wing Hang Bank August 15
Bank of China (HK) Late August
Dah Sing Bank To be announced