Bank of China posts sharply lower profit growth

The lender's first-half profit growth rate is less than half the 19 pc recorded last year, when it benefited from a one-time gain

PUBLISHED : Friday, 24 August, 2012, 12:00am
UPDATED : Friday, 24 August, 2012, 3:36am

Bank of China, the mainland's fourth-largest lender by assets, says profit growth slowed sharply in the first half of this year because of a weaker economy, regulatory changes and the absence of one-time gains that bolstered earnings last year.

Net profit rose 7.6 per cent to 71.6 billion yuan (HK$87.6 billion) in the first six months compared with a year earlier. That was less than half the 19 per cent profit growth rate recorded in 2011.

Last year, the bank's earnings benefited from a one-time recovery of provisions that had been taken for the Lehman Brothers Minibonds Repurchase Scheme. Its subsidiary, Bank of China Hong Kong, was one of 16 banks that agreed to compensate investors for their losses related to the minibonds.

If this effect was excluded, the bank's net profit in the first half would been up 12.22 per cent instead of 7.6 per cent.

The bank's net interest margin, the spread between lending income and funding costs, fell 0.01 percentage point to 2.1 per cent compared with the same period last year. Domestic lending profitability was hit more severely than its cross-border business at BOCHK, because of policy changes to promote interest rate liberalisation on the mainland.

Beijing allowed banks in June to offer depositors interest rates above benchmarks set by the central bank, effectively compressing earnings related to the loan business as competition to vie for deposits intensified.

Analysts expect Chinese lenders' profit growth to have slowed in the first half because of a weaker overall economy, regulatory bans on certain fee income and policy changes to push forward interest rate liberalisation.

Smaller banks will probably post higher rises in bad loans this year because of their larger exposure to small and medium enterprises, Sanford C. Bernstein senior analyst Michael Werner said.

Sheng Nan, an analyst at CCB International, said that while BOC's results were in line with industry trends, an uptick in overdue loans and bad debt in Zhejiang province raised red flags. Total overdue loans, which are not yet classified as bad, rose 17 per cent to more than 80 billion yuan.

The bank's bad loans fell 377 million yuan to 63.6 billion yuan compared with the end of the first quarter. Its non-performing loan ratio, which measures bad loans against total loans, fell 0.06 percentage points to 0.94 per cent, as total loans grew nearly 7 per cent to 6.8 trillion yuan in the first half compared with the end of last year. The lender's overall pool of loan-loss reserves increased in the first half, although its provisions of 9.2 billion yuan were 25 per cent less than what the bank set aside in the year-earlier half.

BOC's income from fee-based businesses, such as trade finance and services, dropped 2 per cent to 34.3 billion yuan in the first half, mainly because of regulatory changes banning certain consulting fees and also tougher markets, which hampered investment returns, analysts said.

The bank's capital adequacy ratio edged up 0.02 percentage points to 13 per cent as compared with the end of last year. Its core capital adequacy ratio stood at 10.15 per cent. Its shares rose 1.36 per cent to HK$2.99 yesterday.