Bank of China posts sluggish profit growth in Q1 amid faltering economy
Bank of China on Tuesday posted a 1.7 per cent year-on-year growth in net profit for the first quarter, slowing down from the gain in the previous quarter, highlighting the continued challenges the bank faces in asset quality and net interest margins amid China’s economic slowdown.
The fourth-largest lender by assets in China saw its net profit reach 46.6 billion yuan (HK$55.6 billion) in the first three months of the year, up 1.7 per cent from a year earlier. The growth compared with a 2 per cent year-on-year increase in net profit for the fourth quarter of 2015.
Non-performing loans totalled 135.8 billion yuan as of the end of March, with the non-performing loan ratio remaining flat at 1.43 per cent from the end of December.
Net interest income declined, down 1.8 per cent year-on-year to 79.54 billion yuan. Net interest margins, the difference between borrowing and lending rates, decreased by 0.25 percentage point to 1.97 per cent, compared with the same period in 2015.
The ratio of allowance for loan impairment losses to non-performing loans was 149.07 per cent, below the 150 per cent guideline ratio set by the China Banking Regulatory Commission.
“In mainland China, economic restructuring was still underway with slowdowns in industrial production, investment and consumption,” BOC Hong Kong, majority owned by Bank of China, said in a statement on Tuesday.
Meanwhile, Bank of China has seen a surge in impairments on bad assets, as its impairment losses on assets rose 15.7 per cent year-on-year to 16 billion yuan in the first quarter.
Chinese banks have been grappling with rising bad loans amid economic weakness, while their interest incomes have also decreased after a string of central bank rate cuts and Beijing’s efforts to liberalise interest rates by removing the deposit rate ceiling.
Moody’s Investors Service said last week that Chinese banks may face increased profitability pressure in 2016 as they struggle with falling domestic interest rates and rising deposit competition in response to interest rate liberalisation.
Separately, BOC Hong Kong on Tuesday also reported that its net operating profit before impairment allowances fell to HK$6.6 billion in the first quarter, down 8.1 per cent from a year earlier. It also dropped 7.8 per cent from the fourth quarter.
Net operating income before impairment allowances reached HK$9.5 billion, declining 4.1 per cent year-on-year and down 10.8 per cent on a quarter-on-quarter basis.
The Hong Kong-based lender said the results were affected by low interest rates and volatile yuan markets.
“Market interest rates continued at low levels, and the RMB market experienced volatility in the first two months of the year and only gradually restored stability in March, the overall operating environment of the banking industry remained highly challenging,” the company said in a statement.
It added that the growth momentum of Hong Kong’s economy has slowed, with weak private consumption and downward pressures on asset prices.
In particular, net interest income fell, mainly due to the narrowing of net interest margin, which was largely caused by a drop in onshore yuan market interest rates and a decrease in higher-yielding RMB balances and placements with banks, BOC Hong Kong said.