Hong Kong company reporting season

Bank of Communications’ Q3 net profit rises as restructuring spurred units to earn more fees

BoCom was the first Chinese bank to reform its business model

PUBLISHED : Friday, 28 October, 2016, 6:28pm
UPDATED : Friday, 28 October, 2016, 6:28pm

Bank of Communications’ third-quarter net profit rose, as a 2015 restructuring spurred its business units to earn more fees and commissions, allowing the lender to reduce its reliance on interest rate spreads for income.

Net profit rose 1.4 per cent to 15 billion yuan in the three months ended September, from last year’s 14.8 billion yuan. Fees and commissions dipped 1.3 per cent to 7.93 billion yuan, while net interest income fell 11.6 per cent to 32.6 billion yuan, according to its filing.

Bank of Communications was the first lender in mainland China to turn around the old headquarter - local branch model, reorganising its businesses and reporting lines into six standalone units. The head of each unit has individual profit and loss accounts to answer to, clear definitions of their target client groups, and financial and human resources.

“The first reformers are always the first to benefit,” Huatai Securities’ analyst Luo Yi said.

The bank’s six units cover financial markets, precious metal trading, offshore business, bills financing, asset management and credit cards. It also has four sub units under them to run investment banking, custody, private banking and its Beijing business.

The change at BoCom, as the bank is also called, is why it’s among the first to diversify its revenue source, with each of its business units becoming a substantial profit centre that allowed the bank to earn profits from fees and commissions.

China’s central bank in October last year liberalised its policy on setting interest rates, reducing the banks’ dependence on rate spreads as their primary source of income.

For the first nine months, net profit rose 1 per cent to 52.6 billion yuan, helped by a 5.4 per cent increase in fees and commissions that earned 28.9 billion yuan. Net interest income for the period declined 6.7 per cent to 101 billion yuan during the nine months.

“In the short term, the bank is still weighed down by the introduction of the value-added tax, the loan pricing trend and the general lack of assets the industry is facing. Net interest income is coming under slower growth because of that. But under the new setup to run the bank by business units, BoCom has been seeing more contribution from non-interest income,” said Luo.

BoCom’s latest level of non-performing loans is now 1.53 per cent of its total lending, a decline compared to the 1.54 per cent level the bank reported at the end of June this year.

The bank’s shares fell 1 per cent to HK$5.81 on the Hong Kong Stock Exchange before earnings were announced. In Shanghai, the stock rose 0.4 per cent to 5.65 yuan.