Bank of Communications’ asset quality ‘challenges’
With NPLs rising, mainland bank sees loan impairment losses soar 19pc, prompting management pledge to respond to a tougher environment
Jane Cai in Beijing and Daniel Ren in Shanghai
Bank of Communications (Bocom), the mainland's fifth-largest lender by assets, said it would embrace "new challenges", after reporting that net profit climbed 12 per cent but loan impairment losses surged 18.7 per cent in the first half.
Bocom, in which HSBC has a stake of 19 per cent, posted a net profit of 34.8 billion yuan (HK$43.7 billion) in the six months to June, compared with 31.1 billion yuan in the same period last year. The interim results came in slightly higher than analysts' projections.
In the second half, the bank would "respond to new challenges" brought by "economic slowdown, accelerated interest rate deregulation and the upheaval of internet finance", the management said in the financial report. Outstanding non-performing loans (NPL) rose 17.3 per cent in the first six months to 31.7 billion yuan, with the NPL ratio rising 0.07 percentage point to 0.99 per cent. Impairment losses on loans and advances totalled 8.47 billion yuan in the first half, up 18.7 per cent year on year.
Dai Fang, an analyst with Zheshang Securities in Hangzhou, Zhejiang, said: "Asset quality and deposit pressure are expected to continue to weigh on the bank's valuation. For the whole year, its net profit will likely grow 10 per cent from last year."
Deposits grew 6.03 per cent in the first half, while local-currency loans expanded 8.62 per cent. Corporate loans were concentrated in some sectors, including manufacturing and wholesale and retail.
The bank said it would focus on "controlling the volume and direction of lending activities" for the rest of this year.
Provision coverage of impaired loans declined 27.76 percentage points to 222.92 per cent over the first half.
Net interest margin - a key measure of lending profitability - stood at 2.56 per cent, narrowing from 2.61 per cent a year earlier.
Net interest income rose 11.3 per cent from a year earlier to 65 billion yuan in the first half, while net fee and commission income grew 26.8 per cent to 13.9 billion yuan.
Capital adequacy ratio (CAR) fell 0.22 percentage point to 13.85 per cent over the first half, while core CAR dropped 0.04 point to 11.2 per cent. Both are higher than regulatory requirements.
No interim dividend will be distributed.
In a separate bourse filing yesterday, the lender said Niu Ximing had resigned as president due to "work arrangements". Niu remains the bank's chairman.
Peng Chun has been appointed vice-chairman and president, subject to the approval of the China Banking Regulatory Commission.
Bocom shares dropped 0.76 per cent to 3.93 yuan in Shanghai trading yesterday before the financial results were released. The Shanghai Composite Index edged up 0.02 per cent on the day. The stock was unchanged at HK$5.26 in Hong Kong.