Bank of East Asia interim profit up 13pc on interest, property values
Beating expectations, earnings hit HK$3.37b on interest income, gains from property values
Bank of East Asia's first-half earnings beat market expectations, but concerns remain about its exposure to the mainland amid the economic slowdown there.
The biggest family-owned lender in the city said it was optimistic about the second half of the year and was seeking to improve its credit quality onshore.
Thanks to net interest income and valuation gains on property investment, net profit climbed 13 per cent to HK$3.37 billion in the first half from a year ago. Analysts had expected earnings to fall. The bank declared an interim dividend of 43 HK cents per share.
Bad loans on the mainland led to an increase of 45.6 per cent in impairment losses. Its fully owned subsidiary, BEA China, reported HK$865 million in net profit in the period, a decline of 10 per cent from last year, deputy chief executive Brian Li Man-bun said.
The bad loan ratio of BEA China climbed to 0.43 per cent in June from 0.27 per cent in December. The entire group's bad loan ratio stood at 0.38 per cent. Li said the credit quality of the group's mainland unit was manageable, as the ratio was still below its peers there. The bad loan ratio for lenders in the mainland is an average 0.96 per cent.
"The tightening of monetary policy on the mainland affected the ability of firms to pay back loans. We noticed such changes starting in the second half of last year half and it has continued in the first half," Li told a conference yesterday.
"Going to the second half, I don't think it will be a lot worse than where we are today."
In a worst case scenario, BEA's bad loans ratio would exceed 1 per cent, the bank's stress test level, Li said, but it was unlikely to happen.
Market participants said BEA was overly optimistic, as bigger lenders on the mainland had warned that credit problems would continue. During a typical recession, bad loans at banks could reach as high as 4 per cent to 8 per cent, and it would take up to 2.5 years for banks to clean them up, said Josh Klaczek, head of Asia financial services at JP Morgan's Asia Pacific equity research.
Total loans grew 9.3 per cent and total deposits rose 2 per cent in the first half from the end of last year. Li said loan growth on the mainland was unexpectedly fast, at a rate of more than 10 per cent. Deputy chief executive Adrian Li Man-kiu reiterated the expectation total loans would grow by a high single-digit rate this year.
BEA stock rose 1.2 per cent to HK$29.45 yesterday.
Chairman and chief executive David Li Kwok-po said the bank will continue to expand in Hong Kong and on the mainland.