Bank of China accelerates international push as domestic revenues tumble

Bank of China said on Tuesday its latest net profit attributable to shareholders for the first half of this year increased by 2.52 per cent to 93 billion yuan. The result missed initial analyst expectations of 94.1 billion yuan, according to Reuters data.

The bank’s net interest income declined by 5.22 per cent year on year to 154.9 billion yuan. Fees and commissions income at the bank, meanwhile, also declined by 4.43 per cent, reaching 47.8 billion yuan in the latest period.

In the first half the profit contribution of BOC’s overseas business soared 43.2 per cent, up from 22.9 per cent a year ago.

Chen Siqing, BOC president, said the bank will accelerate its work towards internationalisation of the bank’s business, aiming to generate a 30 per cent profit contribution from the overseas business in the long-term.

“There isn’t a bank in China that truly represents and speaks for China’s economic heft and trade weight in the world now. BOC now operates in 46 countries along the Belt and road countries. If the work goes well, we can be soon covering 50 countries,” Chen said.

“BOC’s internationalisation is about facilitating the state’s three strategies - One Belt One Road, yuan internationalisation and the corporate internationalisation strategy. We aim to go far and accelerate as we go along.

“Internationalisation is our advantage. Of course other Chinese banks are also internationalising. But our network is still unique. Long-term, we have 3 and 5 year targets for raising our overseas asset percentage – profit contribution is not far away. Boosting overseas profit contribution is out next step.”

In the bank’s most watched performance in controlling the rise of its non-performing loans, management said its NPL ratio was now 1.47 per cent, below the industry average of 1.75 per cent. However, total assets at the bank expanded by 4.7 per cent to 17.6 trillion yuan, which contributed to the dilution of the figure.

BOC’s shares traded up 0.58 per cent in Shanghai on Tuesday, reaching 3.45 yuan a share. The shares were up 1.47 per cent in Hong Kong to HK$3.45. The stock has climbed 4.25 per cent in Hong Kong over the past 12 months but is down 6.40 per cent in China.

“Even if there may be a small increase in interest bearing assets and BOC has compressed operation costs and credit costs, the loans repricing trend is really dragging down the interest margins and business performance,” said Wu Wei, banking analyst at Industrial Securities.

“And if the bank tried hard in raising its level of provisions, the current level has basically reached the lower limit of 150 per cent.

“As China’s most internationalised bank and one of the leading bank in developing an integrated business strategy, Bank of China’s push to develop new businesses on One Belt One Road and overseas business gives it a certain hedge to the tumbling in the domestic banking returns,” Wu said. However, “the deterioration of asset quality is getting worse than expectation”, Wu added.

In Hong Kong, Bank of China (Hong Kong), the bank’s largest offshore subsidiary, said on Tuesday its latest net profit attributable to shareholders was up by 220 per cent to HK$42.7 billion, stemming from an outsized HK$30 billion profit booked from the sale of the bank’s holdings in Nanyang Commercial Bank to China Cinda Asset Management.

BOCHK declared an interim dividend of HK$0.545 and a special dividend of HK$0.71 from the Nanyang sale, at a payout ratio of 25 per cent from the deal.

Yue Yi, BOCHK chief executive, said in the future the BOC group could be operating in all 60 countries along the Belt and Road region. The bank is currently focused on acquiring its parent’s Asean banking network.

However, he added; “Southeast Asia is not the end of BOCHK’s M&A ambition. We don’t exclude the possibility of further acquiring strategically compatible targets.”

After the latest internal transfer of BOC’s Asean network, BOCHK will retain a HK$20 billion war chest to meet local and Asean business growth. Further reserves will be made to meet the Hong Kong Monetary Authority’s expectation for local banks to meet Basel III requirements ahead of the 2019 deadline.