Bank of China (Hong Kong)'s interim net profit edged up 7.5 per cent mainly owing to an improvement in impairments, while volatile market conditions resulted in a trading loss and a drop in stockbroking fee income. Net profit for the first six months rose to HK$7.19 billion, up from HK$6.69 billion a year earlier, as loan impairments recorded a net gain of HK$161 million compared with a charge of HK$1.12 billion the year before, largely due to write-backs on securities provisions. Operating profit excluding the net reversal in impairments was HK$8.01 billion, down 9.4 per cent year on year and up 57.6 per cent from the previous half. Operating expenses increased 8.1 per cent to HK$4.43 billion owing to increasing staff costs and expansion on the mainland. Net interest income was flat at HK$8.97 billion, while the low interest rate environment continued to push net interest margin down 21 basis points year on year to 1.58 per cent. The bank said the low rates were offset by the 12.6 per cent increase in average interest-earning assets from the previous year. Chief executive and vice-chairman He Guangbei said he expected interest rates to remain low well into next year based on recent economic data out of the United States and competition in the Hong Kong banking sector that is likely to intensify in the second half. Net fee and commission income increased 15.3 per cent year on year to HK$3.4 billion, but dropped 4.6 per cent from the second half of last year owing to worsening market conditions, as the bank saw sharp drops in income from its stockbroking and bonds business. The losses were offset by a 56.5 per cent increase in loan commissions, while the credit card business saw fee income soar by 28.1 per cent. Non-interest income fell 10.9 per cent to HK$3.58 billion year on year, on the back of a net trading loss of HK$36 million compared with a gain of HK$804 million last year owing to mark-to-market losses on interest rate and foreign exchange swap contracts. He stressed that the losses were a result of market volatility, which led to mark-to-market losses, and were not any indication of operational problems. Total loans and advances to customers increased 20.2 per cent from the year before to HK$571 billion, with trade finance seeing the largest increase at 34 per cent.