Hong Kong company reporting season

BoCom results improve despite bank being ‘under great pressure’

A better fourth quarter helps the bank beat expectations

PUBLISHED : Tuesday, 28 March, 2017, 9:35pm
UPDATED : Tuesday, 28 March, 2017, 10:46pm

Bank of Communications, China’s fifth largest commercial bank, posted full year net profits for 2016 which were 1 per cent higher than the same period last year, beating analysts’ expectations.

The bank posted net profits of 67.2 billion yuan (US$9.8 billion) up 1 per cent compared to 2015’s 66.5 billion and better than the 1 per cent fall in profits expected by a Thomson Reuters poll of analysts.

“In the fourth quarter BoCom posted good fee income growth, its net interest margin rose by two basis points and its non performing loan ratio fell. This makes me think that things are bottoming out,” said Chen Shujin, a banking analyst at Huatai Research.

In terms of asset quality, Bank of Communications, which is also known as BoCom, had a non performing loan ratio of 1.52 per cent at the end of last year, up two basis points from the end of last year, but one basis point lower than the end of September.

This was achieved in spite of a difficult operating environment, Peng Chun, BoCom president and vice chairman, said in a press conference in Hong Kong on Tuesday.

‘“We were under great pressure… It was not easy for us to see improvements, which shows that our risk-control measures were working in last year’s tough asset-quality environment,” Peng said.

To say it in a good way, we were prudent, in a bad way, we were conservative.”

To say it in a good way, we were prudent, in a bad way, we were conservative
Peng Chun, BoCom president and vice chairman

BoCom is headquartered in Shanghai and Chen said that the bank’s strength in the Yangtze River Delta region had contributed to its better results.

“The NPL ratio improved in Shanghai, Jiangsu and Zhejiang in the fourth quarter of 2016, and BoCom benefitted from this,” she said.

However, it was not all good news. As was widely expected, BoCom saw its net interest income fall by 9.3 billion yuan in 2016 compared to 2015.

As net interest income made up 69.5 per cent of the bank’s income last year this required changes in other parts of the balance sheet, including a rise in fee and commission income to make up the deficit.

All of China’s banks are expected to see declines in net interest income for 2016 due to the effects of changes in VAT and a number of cuts to the base rate by the People’s Bank of China, China’s central bank.

BoCom is the first of China’s traditional big five state owned banks to report its results. Analysts are expecting profits at the other banks to remain flat at best, and probably see a slight decline.

Agricultural Bank of China posts its results on Wednesday, China Construction Bank and ICBC on Thursday, and Bank of China on Friday.

Last Friday, Postal Savings Bank of China also surprised the market by posting at 14 per cent rise in net profits.

Additional reporting by Viola Zhou