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Bank of China

Bank of China Q3 profit rises 2pc to 41.8 billion yuan

Quarterly profit result from BOC reflects the first of the reporting season by China’s big banks

PUBLISHED : Wednesday, 26 October, 2016, 8:01pm
UPDATED : Wednesday, 26 October, 2016, 11:01pm

Bank of China, the country’s largest international lender, reported a 2 per cent increase in third-quarter net profit on Wednesday.

Net profit rose to 41.8 billion yuan during the quarter, from 40.8 billion yuan last year, the bank said in a statement. Net income was 134.8 billion yuan for the first nine months of the year, the bank said.

Bank of China, and Bank of China Hong Kong, Bank of China’s largest offshore subsidiary said that their boards had approved the disposal of 70.49 per cent of Bank of China Hong Kong’s interest in its wholly-owned subsidiary Chiyu Banking Corp following a review of its operations.

Bank of China Hong Kong also reported that its operating profit before impairment allowances had dropped by 10.5 per cent in the third quarter compared with the same period in 2015 to HK$7.4 billion.

Bank of China is the first of China’s large banks to announce its results for the third quarter. The sector as a whole is struggling due to shrinking lending margins and concerns about bad debts, though there are some indications that the pressures eased somewhat in the third quarter.

Analysts from CLSA noted in a report that corporate and mortgage lending both rose in September, with medium to long term loans to households (a commonly used measure for estimating mortgage lending) 74 per cent higher in September from the same month a year earlier.

However, with a number of Chinese cities bringing in restrictions to cool the housing market last month, and much of the corporate lending linked to government policy, CLSA analysts said that it was too early to be optimistic that corporate and mortgage lending growth will continue.

“Overall I expect net profit growth across China’s banks to be flat this year, and the same in the third quarter,” Chen Shujin, China banking analyst, of DBS Vickers said, speaking before any banks’results were announced.

“The banks are trying to balance their non performing loan ratios, their non performing loan coverage and their profits, they can’t improve them all at the same time,” she said.

Bank of China reported 146.034 billion yuan of non performing loans as of September 30, which meant an NPL ratio of 1.48 per cent, up 0.1 percentage points from the end of June. The bank’s ratio of allowances for loan impairment losses to non-performing loans was 155.83 per cent, above the regulatory minimum of 150 per cent.

Return on average equity, an important measure of banks’ performance was 13.66 per cent, a decrease of 1.36 percentage points compared with the same period of 2015.

Regarding the sale of Chiyu bank, Bank of China Hong Kong said in its statement that “the potential disposal... would be consistent with the long term development strategy of the Group in the Hong Kong region.”

A number of financial media sites have reported that Fujian-based Xiamen International Bank is preparing a takeover of Chiyu, which already has branches in the Fujianese cities of Xiamen and Fuzhou.

On Monday BOCHK shares soared after the Hong Kong Commercial Daily reported that an agreement had been reached between Xiamen International Bank and BOCHK. However BOCHK later issued a statement saying that no legally binding agreement had been entered into in relation to the potential disposal.

In May, BOCHK sold its holdings in Nanyang Commercial Bank to Cinda China Asset Management, for which it booked a HK$30 million profit.

In Shanghai trading on Wednesday shares of Bank of China fell for the first time in five days to end the session 0.9 per cent lower at 3.41 yuan. The bank’s Hong Kong-listed shares retreated for the second straight day, easing 1.4 per cent to HK$3.52 before results were announced.