Hong Kong company reporting season

China’s Bank of Communications reports flat interim profit growth as bad loans on the rise

PUBLISHED : Thursday, 25 August, 2016, 10:06pm
UPDATED : Thursday, 25 August, 2016, 11:00pm

Bank of Communications (BoCom), mainland China’s fifth-largest lender, reported meagre profit growth for the first half of the year as declining net interest income and increasing bad loans offset its buoyant insurance business.

The Shanghai-based lender said profits for the first six months amounted to 37.66 billion yuan, up 0.9 per cent from a year ago. For the second quarter, it posted a 1.3 per cent year-on-year profit rise.

“The earnings results are basically in line with market expectations,” said Wu Kan, head of equity trading at Shanghai-based investment firm Shanshan Finance. “But there are still lingering worries about Chinese banks’ worsening asset quality since bad loans would continue to rise for the coming quarters.”

BoCom president Peng Chun told reporters on Thursday that it would probably take three to five years before the bad-loan woes facing the mainland banking sector went away.

The Shanghai-based lender said non-performing loans accounted for 1.54 per cent of its total credit, compared to 1.51 per cent in the year-earlier period.

It wrote off 14.8 billion yuan of non-performing loans in the six months ended June 30, 3.35 billion yuan more than the figure of 11.45 billion yuan a year earlier.

“Small-size companies are still the risky businesses where bad debts are arising,” said Yang Dongping, BoCom’s chief risk officer, adding that Jiangsu, Zhejiang, Shandong and Fujian provinces, as well as Tianjin municipality, saw bad loans rise relatively faster than other regions.

China’s slowing economy that has caused worsening corporate performances has heightened fears of loan defaults despite banks’ stepped-up efforts to manage risks.

Peng said BoCom’s first-half results were satisfactory as it managed to report a flat profit and contain an increase in non-performing loans.

“The risks are controllable but the overall situation remains stern,” he said. “The trend of rising bad loans will likely continue in the second half.”

BoCom’s bad-loan coverage ratio stood at 150.45 per cent at the end of June, compared with 155.57 per cent a year earlier.

Net interest income deriving from its deposit and loan businesses fell 4.1 per cent to 68.15 billion yuan in the January-June period. Net interest margin dropped to 1.97 per cent, down 30 basis points from the year-earlier period.

The bank’s insurance business turned a profit of 8.76 billion yuan in the first six months of the year, a jump of 189.4 per cent from a year earlier. Fee-based income rose 8.1 per cent to 20.96 billion yuan.

BoCom’s A shares edged down 0.2 per cent to 5.81 yuan yesterday and its H shares inched up 0.2 per cent to HK$5.73.

Its bigger rival China Construction Bank reported a 1.15 per cent profit rise on Thursday.

Other major banks including Industrial and Commercial Bank of China will unveil their first-half earnings in the coming few days.

Balance sheets of mainland banks are closely monitored by investors and analysts due to expectations of a substantial rise in their bad-loan ratio.