Volatility fears act against banks using new rules to lift earnings

Concerns over earnings volatility are likely to deter most other banks from using - as Bank of East Asia did this week - recent changes in accounting rules to boost this year's profits, according to analysts.

However, there are concerns that companies with large securities holdings - such as property developers - will choose to adopt the practice introduced by the Hong Kong Society of Accountants in April.

On Tuesday, Bank of East Asia reported higher than expected earnings of $676.89 million after taking the lead in applying the new accounting practice.

Under the new practice, many securities investments - originally classified as long-term investments - can be booked through the profit and loss (P&L) statement as 'benchmark treatment', or booked through balance sheet reserves as 'alternative treatment'.

'Most of the bigger banks are unlikely to follow that [benchmark] route because they don't like the [share] trading volatility,' said Robin Hammond, head of Asian financial institutions product at Paribas.

According to analysts' estimates, Wharf (Holdings) and its associate company Wheelock, together have short and long-term listed securities investments totalling more than $10 billion.

Cheung Kong (Holdings) is estimated to have a portfolio worth about $2.7 billion, while New World Development's holdings are estimated at about $2.3 billion and Sun Hung Kai Properties' portfolio is estimated at about $2.4 billion.