Hong Kong company reporting season

Bank of East Asia’s first-half profits jump 26 per cent as cost-cutting efforts pay off

Hong Kong’s largest independent and locally headquartered bank warns prospects for the global economy for the rest of the year are ‘less bright’

PUBLISHED : Wednesday, 29 August, 2018, 2:02pm
UPDATED : Wednesday, 29 August, 2018, 10:58pm

The Bank of East Asia is nearing the end of a years-long process that saw it trim hundreds of millions of dollars in costs and reorganise its mainland China operations.

As part of those efforts, Hong Kong’s largest independent and locally headquartered bank has moved to reorganise itself as a more digitally savvy financial company by upgrading its online experience for Hong Kong customers and teaming up with technology companies, such as Tencent Holdings, to attract new mainland Chinese customers.

BEA unveiled an electronic payment platform for merchants this month as part of its digital push.

BEA takes on the tech firms in mobile payments race 

Those efforts appear to be paying off as the nearly century-old, family-run lender said on Wednesday that earnings from its ongoing operations rose 26 per cent in the first half of this year.

“Our aim is to empower customers through their smartphones and the internet,” David Li Kwok-po, BEA’s chairman and chief executive, said at a press conference on Wednesday. “Our goal is to make all financial transactions more convenient, more in tune with customer needs and more secure.”

The bank reported a profit from continuing operations of HK$3.99 billion (US$508 million) in the first six months of 2018, compared with a profit of HK$3.17 billion a year earlier.

Including discontinued operations, the lender reported a profit of HK$6.22 billion in the first half of last year.

BEA said that it is 95 per cent completed with its cost-cutting programme, which began in 2016 and is expected to trim HK$700 million in annual costs.

Operating expenses increased 9.1 per cent in the first six months of this year, primarily due to higher staff costs and investments made in its mainland operations.

The bank is in the final year of a three-year cost-cutting programme, aimed to reduce its expenses by HK$700 million. The bank is reducing its branch footprint as it aims to reposition itself to better serve customers digitally and looks to streamline its back-office and mainland operations.

Despite the increase in expenses, cost benchmarks have improved at the bank.

The lender’s cost-to-income ratio improved to 49.1 per cent in the first half of 2018, compared with 50.7 per cent a year earlier.

One question is whether BEA’s digital transformation will include a virtual banking license.

The deadline to apply for one of the Hong Kong Monetary Authority’s first virtual banking licenses is Friday as the regulator seeks to encourage the growth of the fintech industry in Hong Kong.

Adrian Li Man-kiu, the bank’s deputy chief executive, said on Wednesday that the bank was “looking” at potentially applying for one, after previously saying that the lender probably would not seek one.

“I think virtual banking makes the marketplace more exciting and gives the customers more choices,” the younger Li said.

BEA said that the worldwide economy was generally favourable in the first half of the year, but warned that prospects are “less bright” for the remainder of this year.

“In particular, rising trade tensions are generating concerns about adverse impacts on global trade flows and investor sentiment,” the bank said in a statement.

Following its results announcement, Bank of East Asia’s shares closed 1.4 per cent higher at HK$28.95.

The bank’s shares have recently traded more than 20 per cent off their 52-week high, as it was one of two stocks to lose its spot in Hong Kong’s benchmark Hang Seng Index earlier this month.

Bank of East Asia, China Merchants Port ejected from Hang Seng Index

On Wednesday, the bank said that it would pay an interim dividend of 51 HK cents a share.

Net interest income from continuing operations rose 8.9 per cent to HK$6.25 billion in the first six months of 2018. Net fee and commission income from continuing operations increased 11.8 per cent to HK$1.36 billion.

Net interest margin rose to 1.7 per cent in the first half of this year, up from 1.64 per cent in the prior year period.

In Hong Kong, its retail banking business reported a 10.9 per cent increase in operating income for the first half. Pre-tax profit at its corporate and commercial banking division rose 8.9 per cent in the first six months, thanks to lower provisions for bad loans.

The bank’s business in China reported its profit rose 17.2 per cent to HK$393 million in the first half of the year.