Mainland-backed Citic Ka Wah Bank has reported a better-than-expected 348.1 per cent increase in net earnings for the first six months this year thanks to an increase in loan volumes and a widening of interest margins. The bank saw its net profit increase to HK$231.2 million for the first half of the year, compared with a HK$51.6 million increase in the previous corresponding period. Analysts were forecasting Citic Ka Wah would earn HK$355.7 million for the full year. The strong results mean the bank has fulfilled 65 per cent of analysts' full-year earning forecasts in the first six months of the year. The bank reported its net interest income increased 35.1 per cent to HK$542 million during the period, while non-interest income surged 63.2 per cent to HK$201.2 million. Cai Zhongzhi, president and chief executive of the company said that the strong growth in earnings was driven by a 9.4 per cent increase in total lending to HK$30.97 billion at the end of June. An increase of 45 basis points in net interest margin to 2.5 per cent also contributed an additional HK$101 million in net interest income during the period. 'We have substantially increased our sales and marketing resources and reduced our costs during the first half,' explained Mr Cai. After restructuring the bank's assets over the past two years, Citic Ka Wah Bank said its problem loans had been reduced from a peak of HK$6.9 billion at the end of 1997 to HK$2.4 billion by the end of June this year. More than 80 per cent of the problem loans had been extended to mainland-related companies. Mr Cai said the company had established an asset management company in June to manage the HK$2.4 billion in problem loans. The bank provided HK$197.6 million for bad and doubtful debts in the first half year, representing a decrease of 12.2 per cent in bad-debt provision over the first half last year. Executive director Kevin Lo said the bank had recovered HK$4.2 billion of problem loans over the past two years. He expected the problem-loan level and bad-debt provisioning to come down even further. Loan exposure to mainland-related companies accounted for 26.2 per cent of the bank's total loan portfolio, compared with 37 per cent at the end of last year. The reduced exposure to the mainland was mainly due to an expansion of the bank's total loan portfolio, Mr Cai said. Earnings-per-share was 8.91 HK cents compared to 1.99 HK cents in the same period last year. For the first time the company declared an interim payment of two HK cents. It will continue the practise in the future. 'For more than 10 years we have not paid any interim dividends. But now, since more than 80 per cent of Hong Kong banks pay interim dividends, we have decided to follow their practice,' Mr Cai said. Shares in Citic Ka Wah Bank dropped 12.5 HK cents to close at HK$2.875 yesterday, representing a fall of 4.17 per cent.