Hong Kong company reporting season

BoCom posts better-than-expected interim profit on better risk management

The bank’s 3.5 per cent first-half profit rise beat analysts’ forecast of a decrease by 4.4 per cent

PUBLISHED : Thursday, 24 August, 2017, 8:51pm
UPDATED : Thursday, 24 August, 2017, 8:51pm

Bank of Communications (BoCom), the mainland’s fifth-largest commercial lender, posted better-than-expected earnings for this year’s first half after it strengthened risk management to contain bad loan growth.

The Shanghai-based bank said it earned 39 billion yuan (US$5.85 billion) in the six months ended on June 30, up 3.5 per cent from a year ago, beating a consensus forecast by analysts of 36 billion yuan.

It was expected to report a 4.4 per cent profit drop for the first half based on the estimated 36 billion yuan profit.

“As the bank managed to prevent bad loans from increasing, its first-half performance turned out to be better than what the market expected,” said Wu Kan, a fund manager at Shanshan Finance in Shanghai. “A 3.5 per cent profit rise is a satisfactory result.”

Non-performing loan ratio by BoCom stood at 1.51 per cent on June 30, compared to 1.52 per cent at the end of last year.

Net interest income between January and June dropped 8 per cent from a year earlier to 62.7 billion yuan owing to a shrinking net interest margin.

As the bank managed to prevent bad loans from increasing, its first-half performance turned out to be better than what the market expected
Wu Kan, Shanshan Finance

Mainland banks began to see declines in net interest income since 2016 due to the effects of a reformed value-added tax mechanism and the cuts in the base rate by the central bank.

BoCom’s net interest margin decreased 40 basis points to 1.57 per cent at the end of June.

“We will try to maintain the net interest spread,” said Wu Wei, chief financial officer of BoCom. “It is likely that we can widen the spread with our efforts.”

Technically, a bank can increase the net interest spreads by attracting more short-term deposits while extending more long-term loans.

BoCom results improve despite bank being ‘under great pressure’

Mainland banks’ performance largely hinge on the country’s economic conditions.

Beijing’s stepped-up efforts to de-leverage an economy facing increasing financial risks in the past few years have stopped banks from enjoying high net interest margins to shore up profits.

BoCom said its bad-loan provision coverage rose 0.52 percentage point from the beginning of 2017 to 151.02 per cent at the end of June.

In the first quarter of this year, the bank posted a year-on-year profit growth of 1.35 per cent.

In early August, BoCom said its chairman Niu Ximing would take sick leave due to health reasons with president Peng Chun taking over the chairmanship.

BoCom was the first among the country’s largest five banks to report first-half earnings.

The country’s Big Four lenders – Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China – are expected to post first-half results on August 31.

BoCom’s A shares slid 0.5 per cent to 6.27 yuan on Thursday and its H shares gained 1.6 per cent to HK$5.75 (74 US cents).