BEA beats rivals with impressive financial results
Clean balance sheet and good growth makes BEA the stand-out bank in this results season
Bank of East Asia appears to have emerged as the winner in the latest round of results announcements among leading listed banks in Hong Kong, as a clean balance sheet and sound growth momentum impressed investors more than international peers HSBC and Standard Chartered.
Hang Seng Bank, the Hong Kong subsidiary of HSBC, is regarded cautiously by analysts, due to its outlook for slow income growth. Its results were boosted by an accounting change reflecting a capital gain in its China subsidiary Industrial Bank, but otherwise analysts argue that it faces flat income growth.
An emerging economic recovery in developed countries and an anticipated rise in interest rates would eventually help HSBC and Standard Chartered, analysts said.
Meanwhile, local banks have emerged as the preferred picks for investors who are focused on the contribution of mainland-related operations to topline growth.
Investors are focused more on the opportunity for growth in the mainland market rather than the risks of deteriorating credit quality that dog dominant Chinese banks, analysts say.
"BEA is well positioned with its BEA China operation," said Steven Chan, an analyst at Maybank Kim Eng. "Though there is a risk in the China business [in terms of deterioration of asset quality], the growth potential outpaces the risks."
Some analysts said they were concerned about credit quality on the mainland and capital adequacy at BEA, but the numbers for last year showed gradual improvement. The bad loan ratio edged up slowly from 0.38 per cent at the end of June to 0.39 per cent to the end of December. Core tier one capital improved to 11.4 per cent from 10.4 per cent.
The clearest sign of the rising risks in the mainland financial system emerged last week when the onshore credit market had its first default after solar company Shanghai Chaori Solar Energy & Technology failed to pay interest due to investors in its bonds.
HSBC, Hang Seng and BEA all reported growth in earnings last year, compared to Standard Chartered's first earnings fall after a decade of rising profits.
Both HSBC and Standard Chartered missed the market consensus amid a lack of growth momentum.
HSBC's shares have fallen 3 per cent since it announced its results on February 24, making it the worst performer to date in terms of share performance of that group.
Some analysts pressed for a clearer picture from Standard Chartered on its reorganisation plan, which it announced in the fourth quarter.
The bank said last week that four non-core businesses, including two in South Korea, were put up for sale, but there was no "long list" for the disposals.
"It is difficult to see the outlook for the bank as the management was reluctant to give more details on the plan," BNP Paribas analyst Dominic Chan said.
Alex Wong Kwok-ying, a fund manager at Ample Finance, said he is betting on Bank of China (Hong Kong), the sole yuan clearing bank in the city.
The bank would be benefit from liquidity tightening on the mainland, as loan demand in the onshore market would be diverted from the parent to the Hong Kong subsidiary, Wong said.