Operating costs at BOC Hong Kong (Holdings) climbed 38.4 per cent last year mainly due to settlement of claims from the Lehman Brothers minibond debacle, cutting operating profits by 17 per cent to HK$13.914 billion. Operating expenses in 2009 were HK$12.141 billion, of which HK$3.278 billion stemmed from paying investors in Lehman related products. 'Whether or not we will make further provision to compensate investors for the losses in Lehman Brothers related products will depend on individual cases,' said He Guangbei, vice chairman and chief executive of BOCHK. The bank, the largest local distributor of minibonds, and other local lenders agreed in July last year to pay investors a total of HK$6.3 billion following talks with regulators, who brokered the deal on behalf of investors who lost money after buying the complex Lehman products. Under the terms of the agreement, investors received payments equal to 60 to 70 per cent of the nominal value of the minibonds they bought. Despite the rise in operating expenses compared with 2008, the bank's 2009 net profit soared to HK$13.725 billion from HK$3.343 billion a year ago. Net interest income fell 11 per cent to HK$17.932 billion, due to a narrowing of the net interest margin to 1.69 per cent reflecting low prevailing interest rates. 'Both the local mortgage and loan markets are very competitive,' He said. 'We believe there's room for growth but things won't change unless interest rates go up.' Net fee and commission income grew by 25.7 per cent to HK$6.508 billion for the year. The bank said the main profit driver was its stock brokerage business, which generated income of HK$3.638 billion, an increase of 52.9 per cent from 2008. Another strong performer was BOCHK's lending business which booked HK$922 million in loan commissions, up 79.7 per cent from HK$513 million in 2008. Fee income from BOCHK's investment and insurance business grew by 52.9 per cent to HK$3.638 billion, which the bank attributed to improving sales and increasing market share. Income from BOCHK's credit card operation grew a moderate 6.6 per cent to HK$1.511 billion compared with HK$1.417 billion in 2008. BOCHK said it had slashed its holdings in residential mortgage-backed securities issued by the United States non-agencies by 80.4 per cent to HK$3.784 billion. Last year saw the bank underwrite the first yuan-denominated sovereign bond issued in Hong Kong. He said the bank would consider underwriting other yuan-denominated bonds issued by corporations for the local market. Employees of the bank would receive a bonus this year, but He declined to give details of the amount it would pay to staff. 'We didn't get a bonus last year,' He said. 'So it's very good to have it this year.'