Bank shrugs off losses from insurance and costs as loan book quality increases Industrial and Commercial Bank of China (Asia) yesterday posted a 54 per cent year-on-year surge in first-half net profit to $357.57 million, overcoming flat non-interest income, rising costs and losses from insurance investments. Its bottom line was helped by strong interest income and a large write-back of bad loan charges, reflecting a recurring theme in this year's bank reporting season as Hong Kong's rebounding economy lifts loan quality. Consolidated net interest income of the Hong Kong unit of China's largest bank rose 47 per cent to $558.06 million as loans grew 42 per cent to $59.5 billion. Corporate lending remains the largest category in the bank's loan book, but retail and small and medium-sized enterprise loans experienced strong growth on a smaller basis of comparison, chief executive Zhu Qi said yesterday. However, the bank's non-interest income edged up a meagre 1 per cent to $139.1 million, after a dramatic fall in fees from syndicated loans which account for most of its non-interest income. 'We will try to diversify the sources of our non-interest income,' Mr Zhu said, adding the bank would seek to expand fee revenues from mutual fund sales and wealth management. ICBC wrote back $21 million of bad and doubtful loan charges, compared with provisions of $77 million a year earlier. Non-performing loans were 1.6 per cent of the loan book as of June 30. The bank's results included a pretax profit contribution of almost $50 million from the Hong Kong banking operations of Fortis Bank in May and June. ICBC bought Fortis Bank in April, becoming the sixth-largest listed bank in Hong Kong. 'We're happy about Fortis' contribution so far,' said Mr Zhu of the subsidiary now renamed Belgian Bank. 'We expect it to be kept up in the second half.' However, the bank lost more than $30 million on its investment in Tai Ping Insurance. Mr Zhu said it was early days yet for the insurance business, and the loss was within earlier expectations. ICBC saw a 3.4 percentage point year-on-year increase in its cost-income ratio to 32.8 per cent mainly because of operating expenses incurred by Belgian Bank. The acquisition more than doubled its staff from 600 to 1,300 and expanded its branches from fewer than 30 to 42. The cost ratio remained low among its Hong Kong peers, Mr Zhu said before warning of additional cost burdens from the bank's move to a new office and installation of a new computer system next year. 'We will try to grow our profit by expanding revenue sources to make up for higher costs, so that our profit and return to investors will not be affected,' he added. ICBC expected to boost its return to equity by 3.9 percentage points to 15 per cent in the medium term, Mr Zhu said. The bank will further maintain its high dividend payout. Its board has recommended an interim dividend of 14 cents, representing 37.8 per cent of its fully-diluted earnings per share of 37 cents in the period.