Huge provisions by IBA underline China exposure fears

Hong Kong shares fell for a second day yesterday as provisions announced by International Bank of Asia (IBA) underlined the tough prospects facing Hong Kong corporates with sizeable mainland exposure.

The Hang Seng Index ended 0.87 per cent lower at 9,419.85 points, with most bank counters down.

Mainland-related shares also lost ground.

Brokers said stock prices were also put under pressure by falls on the Tokyo market, which was undermined by rising bond yields.

IBA closed at $1.41, a 5.36 per cent loss, after reporting profit well below expectations, in part because of aggressive provisioning for bad debts.

IBA said net profit last year plunged 79.56 per cent to $81.83 million. Analysts had expected profits of $100 million. Provisions were raised 526.52 per cent to $339.39 million.

Bank of East Asia closed 3.11 per cent lower at $10.90, after rising 3.21 per cent on Tuesday, when it announced results for last year broadly in line with expectations.

HSBC, which unveils its figures on February 22, closed unchanged at $193.

A broker said bank results had not been disastrous so far, but it was important not to play down the impact of souring mainland markets.

'It shows that the market is going to struggle. We are past the worst of times, but there is some weakness ahead,' the broker said.

Shenyin Wanguo Securities research director Phillip Chan said the broader market might not be badly hit by smaller banks' poor results.

'Smaller banks are expected to report bad results. It's not going to be that surprising,' Mr Chan said.

Geomatrix chief financial officer Jon Coleman remained bearish.

'I can't see any good news for at least two or three months,' he said.

Investors had to consider both banks' direct exposure to mainland entities and indirect exposure through lending to Hong Kong companies with mainland interests, he said.

'The problem is that we don't know what the real book value of these corporates is.' The red-chip index fell 1.39 per cent to 675.18 points, while the H-share measure ended 1.44 per cent lower at 300.18 points.

Mr Coleman said: 'The only places in Asia that look half decent are Australia and New Zealand.' Turnover remained thin yesterday as shares worth $2.51 billion changed hands.

With a United States Federal Reserve decision on interest rates coming after the market close, few investors were prepared to take positions.

Mr Chan said turnover could remain slight in the lead up to the Lunar New Year break.

'Coming up to Lunar New Year, people are not prepared to take positions,' he said.