Advertisement
Advertisement
Banking & finance
Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
Customers at a Bank of East Asia branch in Mong Kok, Hong Kong. Photo: Nora Tam

Bank of East Asia reports lowest profit since 2009, to revamp mainland China business amid surging bad loans

  • Profit fell by half to HK$3.26 billion last year, the lowest level since the depth of global financial crisis in 2009
  • Mainland China business incurred a HK$3.55 billion loss after provisions for bad loans surged

The Bank of East Asia is reorganising its mainland business after suffering a stunning loss in the world’s second-largest economy as efforts to grow its loans in lower tier cities backfired amid delinquencies.

The 101-year old Hong Kong-based lender will shift its expansion towards digital banking and step up its efforts in Tier-1 cities to reduce the risk of non-performing loans on its books, co-chief executive Brian Li said. The decision follows a slump in 2019 earnings to the lowest since the depth of global financial crisis in 2009.

Profit fell by 50 per cent to HK$3.26 billion (US$420 million) last year or HK$0.89 per share, the bank announced on Wednesday. In mainland China, it lost HK$3.55 billion after booking a five-fold jump in provisions for bad loans to HK$7.25 billion. Hong Kong generated a 16.5 per cent increase in profit to HK$5.795 billion.

Hong Kong protests could hammer city’s economy, BEA warns, as its profit slumps

“We believe the worst is over as we have already made sufficient provision last year,” co-chief executive Brian Li Man-bun said in a teleconference on its financial results. “The provision should reduce in future. Previously, we expanded in lower-tier cities but now we will focus to lend to more clients in the Tier-1 cities.”

More than 90 per cent of the bad loans were related to credit extended to mainland customers including property developers and shopping-centre operators, the bank said. That resulted in a surge in bad-loan ratio from 0.7 per cent to 1.22 per cent. It has since reduced its mainland branches to 98 from 100, it added.

BEA shares rose 2.7 per cent to HK$17.74 in Hong Kong on Wednesday, as earnings fell less than analysts predicted in a Bloomberg survey.

David Li Kwok-po, executive chairman of the Bank of East Asia. Photo: Jonathan Wong

The results came as a baptism of fire of sorts for Brian Li and his brother Adrian Li Man-kiu, who together took over the helm in July last year amid anti-government protests in Hong Kong and now the coronavirus outbreak earlier this year. Their father David Li Kwok-po, who turns 81 next month, stepped down to become its executive chairman. The novel coronavirus outbreak has brought about additional uncertainties in the group’s operating environment and has impacted the group’s operations, the bank said.

“We believe the Covid-19 outbreak will have an impact on the short term,” Adrian Li said. “If it lasts until summer, then it will affect our business in the second half.”

HSBC to cut costs by US$4.5 billion, slash 35,000 jobs in third overhaul in a decade as bank’s 2019 earnings miss target

Hang Seng Bank, another major local lender majority-owned by HSBC Holdings, reported lower than expected 2019 earnings on Monday, also affected by higher bad debt provisions and lower fee income as the local economy slipped into a technical recession.

“The local banking business is hard hit by the social unrest and China’s economic slowdown last year,” said Kenny Ng Lai-yin, securities strategist at Everbright Sun Hung Kai. “The Covid-19 outbreak is going to further damage the economy in the first quarter and local bank results are unlikely to bounce back in the first half.”

This article appeared in the South China Morning Post print edition as: BEA revamps mainland business as bad loans rise
Post