Bank of East Asia said net profit last year rose 39 per cent from 2011 to HK$6.06 billion - a record for the third consecutive year.
But the surge came mainly from a one-off fair-value gain from financial instruments and trading profit, accounting for a combined HK$1.6 billion. Excluding those items, pre-tax profit increased 3.5 per cent to HK$5.95 billion.
The bank expects loan growth in Hong Kong and on the mainland to be in single digits this year, although it will be in the high end for the latter.
Steven Chan, an analyst at Citic Securities, said he remained cautious about BEA China's asset quality.
The subsidiary's impaired loan ratio rose to 0.27 per cent from 0.1 per cent a year earlier, which Brian Li Man-bun, a deputy chief executive of BEA, attributed to a few loan cases in Zhejiang province.
BEA's loans to customers jumped 11.2 per cent to HK$350.7 billion at the end of last year. But its mortgage loan book shrank 7 per cent, a result of reduced property transactions in the wake of the government's cooling measures, said Adrian Li Man-kiu, another deputy chief executive.
Chairman and chief executive David Li Kwok-po complained about the over-regulation of the property sector. "I like a free market," he said.
Total deposits grew 9.9 per cent to HK$526.1 billion at the end of the year, while net interest income rose 5 per cent to HK$9.72 billion.
Net interest margin narrowed by eight basis points to 1.67 per cent, but in the second half of last year, it expanded by seven basis points. Net interest margin is the difference between loan income and the cost of funds, relative to interest-earning assets.
BEA said net interest margin had stabilised on the mainland and it expected an improvement in Hong Kong this year.
Non-interest income jumped 56 per cent to HK$5.38 billion as investments performed well.
The cost-income ratio fell 5.2 percentage points from a year earlier to 57.7 per cent. Chief financial officer William Cheng Chuk-man said the bank hoped to bring the ratio to 55 per cent in three years.
At the end of last year, the core capital adequacy ratio was 10.7 per cent, up from 9.4 per cent.
The bank announced a final dividend of 63 HK cents per share for a payout ratio of 40.3 per cent.