Hong Kong company reporting season

Bank of China beats estimates to post strongest profit rise among big state-owned banks

PUBLISHED : Friday, 31 March, 2017, 8:59pm
UPDATED : Saturday, 01 April, 2017, 12:24pm

Bank of China, China’s fourth-largest bank by assets, reported net profits for 2016 rose 2.58 per cent year on year, beating analysts’ expectations and higher than the profit gains posted by its competitors earlier this week.

BOC, the last of the nation’s biggest state-owned banks to release 2016 results, reported net profit of 184.1 billion yuan (US$26.7 billion), beating an average estimate of 167 billion yuan by analysts polled by Bloomberg.

The result was bolstered by a 23.64 per cent rise in non-interest revenue to 179.6 billion yuan, offsetting the 6.88 per cent decline in net interest revenue.

BOC’s non-performing loan (NPL) ratio, a key metric of asset quality, rose 3 basis points to 1.46 per cent, the lowest among China’s large banks. Agricultural Bank of China and Industrial and Commercial Bank of China posted ratios of 2.37 per cent and 1.62 per cent respectively.

Chen Shujin, an analyst with Huatai Financial Holdings, said she was impressed by BOC’s bad-loan provision, which stood at 162.8 per cent, 9.5 percentage points higher than a year ago. That was higher than its peers and beat estimates, which Chen said reflected the bank’s intent to set aside a larger provision to alleviate the burden for 2017 even it meant less profit for this year.

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Like all Chinese banks, BOC saw its net interest margin fall in 2016, but unlike competitors it also saw a decline in fee and commission income.

BOC vice-president Zhang Qingsong said at a press conference in Beijing that the 4 per cent fall in fees and commissions was caused by a proactive fee cut and a fall in cross-border transactions. The decline slowed in the second half.

The surge in non-interest revenue, which boosted the bank’s profits, was driven by “product innovation”, according to Zhang. He said the bank would continue to grow its non-interest revenue this year by expanding overseas businesses, consumer finance and wealth management services as well as boosting its investment banking sector, which includes bond underwriting and trusts.

Chen said the strong growth in non-interest revenue was due to net gains on trading and securities investment, which were in line with other major banks.

BOC’s Hong Kong subsidiary, BOC Hong Kong (Holdings), more than doubled its profits in 2016 to HK$55.5 billion (US$7.1 billion), thanks to the HK$30 billion gain from the sale of its interest in Nanyang Commercial Bank last year.

Once this and other one-off elements were excluded, BOCHK reported a 6.8 per cent rise in profit to HK$23.7 billion.

BOCHK also announced last week that it had finalised the HK$2.5 billion sale of its stake in Chiyu Bank.

Chief executive Yue Yi said at a press conference in Hong Kong on Friday that the proceeds of the two sales would be used in part to continue the acquisition and integration of Southeast Asian assets from BOC “to transform BOCHK from a Hong Kong bank to a regional bank”.

“We do not exclude the possibility of taking up a shareholding in other regional institutions or financing platforms,” Yue added.

In Hong Kong, there has been an increase in the number of transactions involving buyers purchasing more than one flat, causing concerns about an overheating property market.

BOCHK deputy chief executive Ann Yeung Yun-chi said these transactions accounted for 10 per cent of total sales of new flats.

“The bank will consider borrowers’ repayment ability and buying purpose when they come to apply for a mortgage loan. Buyers of flats not for their own use will face stricter requirements,” she said.