EARNINGS

BOC(Hong Kong) posts 9 per cent drop in revenue

Yuan-focused bank hit hard by volatility spike since liberalisation moves as operating profit before bad debt charges falls 12.9 per cent

PUBLISHED : Friday, 30 October, 2015, 2:27am
UPDATED : Friday, 30 October, 2015, 2:27am

Bank of China (Hong Kong) reported poor third-quarter results on Thursday, with revenue down 9 per cent to HK$11.2 billion.

Operating expenses increased 0.5 per cent from the previous quarter to HK$3.4 billion while operating profit before bad debt charges was down by 12.9 per cent, to HK$7.7 billion.

The HK$68 billion that the bank made selling Nanyang Commercial Bank to China Cinda Asset Management has yet to be reflected on the bank's balance sheet as the deal is subject to regulatory approval.

Barclays projects BOCHK's tier-one capital ratio could exceed 21 per cent after the finalisation of Nanyang sale.

As the most yuan-centric banking institution in Hong Kong, BOCHK has been hit hard by the sharp spike in yuan volatility since yuan liberalisation moves in August.

The bank's depositors have reacted to the shock depreciation that month by withdrawing their yuan deposits, shrinking BOCHK's total assets and deposit base in the third quarter.

The withdrawal trend has pushed up funding costs and put the bank's net interest margins under pressure, even though the loan balance stable has remained stable.

BOCHK has also seen its monopolistic role as the designated yuan clearing bank for Hong Kong starting to lose its glow.

Since October 8, when China's Cross-Border Interbank Payment System became available, other banks no longer have to go through BOCHK for yuan clearing.

Previously, the bank processed 60 per cent of global yuan settlements. In Hong Kong, it processes one trillion yuan of such transactions a day. The payment flows gives BOCHK preferential access to intraday liquidity to yuan in the city.

Nomura banking analyst Sophie Jiang, however, views CIPS as only a nominal threat to BOCHK's overall role in yuan clearing. She maintains the bank will be a top beneficiary of the drive for yuan internationalisation.

BOCHK has also been actively expanding in the Asean region, which Jiang believes, could buoy the bank as parent Bank of China could leverage BOCHK's offshore management and expertise picked up in Hong Kong.

Sharnie Wong, banking analyst at Barclays, also said the expansion strategy could offer BOCHK significant long-term growth opportunities.

Wong said the latest quarterly performance is in line with expectations.

Meanwhile, net profit at parent Bank of China edged up 0.79 per cent to 137 billion yuan. Its loans and customer deposit base are still growing, by 6.51 per cent and 6.1 per cent respectively, compared to the period last year.

Revenue increased 3.01 per cent to 131 billion yuan while total assets grew 9.31 per cent to 16 trillion yuan. But its net return on asset slipped to 15.02 per cent. Bank of China will likely make further calls for capital increases as its tier-one capital adequacy ratio is now at just 10.71 per cent.

Separately, China Construction Bank's net profit in the third quarter rose 0.73 per cent year on year, reaching 192 billion yuan. Its non-performing loan ratio rose 0.26 per cent, hitting 1.45 per cent, while its net interest margin was down 0.16 per cent to 2.64 per cent. The bank's return on asset is now at 1.46 per cent.

Construction Bank's fee and commission income rose 5.83 per cent, providing support to its otherwise poor lending profitability. The growth was largely derived from its card business, wealth management products, fund and insurance distribution businesses, which brought in 88.7 billion yuan.

China Merchants Bank, meanwhile, reported net profit rose 5.89 per cent year on year, reaching 48.5 billion yuan. Non-performing loans ratio climbed to 1.6 per cent.

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