The fallout from mainland debt difficulties helped push International Bank of Asia's (IBA) profit down 79.5 per cent last year. The second bank to report full-year earnings saw a 526.5 per cent increase in provisions for bad and doubtful debts to $339.39 million. On Tuesday Bank of East Asia reported a 55 per cent plunge in profit after seeing a fivefold increase in provisions for bad and doubtful debts to $1.5 billion. IBA reported attributable profit of $81.83 million for the year to December, down from $400.38 million the previous year. The bank made full provisions against its $100 million exposure to the collapsed Guangdong International Trust and Investment Corp. It also took a $40 million provision for its $489 million exposure to other international trust and investment corps (Itics). IBA vice-chairman and chief executive Mike Murad said the results might appear disappointing but he believed the aggressive steps taken in provisioning should help lead the bank into the coming year with clean books. 'IBA has both a very strong balance sheet and high liquidity which will permit us to concentrate on developing new opportunities when the economy turns around,' he said. In December, the bank had 3 per cent of its portfolio exposed to Itics and more than 9.25 per cent to mainland-related lending. The provisions charge pumped up loan loss provisions reserves on the bank's balance sheet to $388.17 million, of which $156.72 million were general provisions reserves and $231.44 million were specific provisions reserves. The bank's non-performing loans (NPLs) - loans on which interest has been suspended - stood at $779.14 million or 4.78 per cent of its total portfolio, up from the previous 0.17 per cent. Of these loans, 67 per cent were covered by collateral valued at $524.36 million, while 29.7 per cent were covered by the $231.44 million in specific provisions reserves. The general and specific provisions reserves covered 97 per cent of the bank's NPLs, a level which a Warburg Dillon Read analyst described as 'very comfortable'. Nomura Securities head of north Asia banking research Anthony Lok said the bank's move to clean up its books might have been correct but that would not necessarily imply that non-performing loans and provisions would be frozen. Operating profit before provisions declined 16.9 per cent to $450.65 million after a 3.64 per cent drop in operating expenses. Mr Murad said in light of the difficult environment ahead with few promising lending opportunities available, the bank had deliberately trimmed the size of its loan book and deposits to preserve liquidity and minimise funding costs. The bank's pre-provisions loans declined 18 per cent to $16.31 billion as it withdrew facilities from some unprofitable customers. Deposits fell 14.5 per cent to $20.57 million after letting $485 million in floating rate certificates of deposit retire as scheduled without a roll-over. The changes helped ease the loan-to-deposit ratio to 77 per cent from the previous 80 per cent. Mr Murad said this ratio would decline further to 70 per cent in the middle of the year. He said he believed the bank would be better able to manage its funding costs as it reduced its reliance on interest-rate-sensitive floating certificates funding while depending more on stable customer deposits. The bank recorded a rapid 20.63 per cent increase in interest expenses due to last year's interest rate volatility, but only a 10.12 per cent growth in interest income. Looking ahead, Mr Murad said the bank might merge some of its 28 branches in an effort to further reduce costs, but ruled out retrenching staff.