Bank of China annual pretax profit rises 0.04 per cent, as bad debt related-losses jumped 23 per cent

PUBLISHED : Wednesday, 30 March, 2016, 10:48pm
UPDATED : Thursday, 31 March, 2016, 12:39am

Bank of China, now the world’s fourth largest bank, up from its seventh place in 2014, reported Wednesday 2015 pretax profit rose 0.04 per cent to 231.5 billion yuan (HK$277 billion). The figure fell short of average analysts’ expectation of 234.9 billion yuan.

BOC was dragged down by bad debt-related losses which leapt 22.5 per cent to 59 billion yuan. The bank’s overall non-performing loan ratio increased by 25 basis points to 1.43 per cent, even as the bank had expanded the size of its balance sheet by 10 per cent to 16.8 trillion yuan. The industry average NPL ratio is currently 1.67 per cent.

“Under the complex operating environment, it hasn’t been easy to achieve growth last year [2015],” BOC President Chen Siqing said.

“2016 will be a year of deep restructuring. The downward adjustment for the economy leading onto asset side pressure is serious. Our strategy for this year is to stabilise and to improve.”

He said BOC must generate 500 million yuan a day in revenue this year.

The banks executive vice president Ren Deqi said strength in the US dollar had been a positive factor lifting BOC’s balance sheet amidst the yuan’s depreciation and capital outflows from the domestic economy.

Twenty-seven per cent of BOC’s assets are now offshore, the highest level achieved amongst mainland peers. Last year, these assets pulled in 24 per cent of BOC’s profits.

“Internationalisation has always been BOC’s competitive advantage. It is our brand. With our foundation overseas, we are better equipped to handle the challenges stemming from interest liberalisation and the pressures in the economy this year,” he added.

In Hong Kong, subsidiary Bank of China (Hong Kong) reported profit before tax was up 5.7 per cent to HK$29 billion, while net interest margin fell to 1.46 per cent from 1.67 in 2014 on account of higher funding costs for yuan.

Yue Yi, chief executive of BOCHK said the bank’s income has been aversely impacted by the volatility seen in the yuan.

“The long-term appreciation expectation for yuan has changed. So it has negatively impacted growth in yuan deposits. Loans, meanwhile, saw tremendous growth last year. These changes are not only related to forex. Clients are adjusting their own assets and liabilities. Previously when renminbi funding costs were lower, there were more funds parked in Hong Kong... We can’t say the net interest margin will be further negatively impacted this year. But we see the yuan internationalisation policy is basically unchanged.”

BOCHK is currently undergoing a restructuring in its strategy to reposition itself to a regional bank, instead of a Hong Kong bank, that serves Asean economies.

This year, it will fully take over its parent’s branch networks in Southeast-Asia.

“The acquisitions are on track. We will close some in the first half and some more in the second half. We will be able to inject Hong Kong’s service model and products to Asean. It plays up our corporate banking strategy to have us serve as the APAC management centre.”

BOCHK shares closed 1.56 per cent higher on Wednesday at HK$22.85. Bank of China traded 3.17 per cent higher to HK$3.25.