Bank of Communications Profit Surpasses Estimates (Update1)
Aug. 19 (Bloomberg) -- Bank of Communications Ltd., China’s fourth-largest publicly traded bank, posted second-quarter profit that beat analysts’ estimates, helped by record credit growth and
an increase in fee-based services. Net income was little changed at 7.62 billion yuan ($1.1 billion), or 0.16 yuan a share, the Shanghai-based company, also known as BoCom, said in a statement today. That was higher than the average estimate of 7.24 billion yuan from nine analysts in a Bloomberg survey.
Chairman Hu Huaibang joined peers in China in extending a combined $1.1 trillion of credit in the first half to counter pressure on lending margins and support the nation’s $585 billion economic stimulus package. The economic revival, starting with the 7.9 percent expansion in the second quarter, and the addition of more fee-based services by the bank may lead to better results in the second half, Hu said today.
“The strong credit growth will benefit the bank’s earnings for the rest of this year,†said Lee Yuk Kei, a Hong Kong-based analyst at Core Pacific Yamaichi International Ltd.
“The pickup in fee income is quite remarkable since they didn’t just rely on stock brokerage commission, but rather from a more diverse base,†including credit cards, the analyst said.
Outstanding loans at BoCom, part-owned by HSBC Holdings Plc, rose 31 percent from the beginning of the year to 1.7 trillion yuan at the end of June, according to today’s statement.
The bank’s impaired loans accounted for 1.51 percent of total advances, compared with 1.92 percent by the end of December. “The industry has stabilized along with the economy after reaching a trough in the first quarter,†said Wu Yonggang, an analyst at Guotai Junan Securities Co.
“Key indicators of loan growth, margins and fee income all point to an uptrend.†He estimates
Chinese banks will post an average 15 percent to 20 percent increase in earnings next year. Fees and Commissions
Bocom’s net interest income, or the revenue from lending minus interest paid to depositors, fell 8 percent to 15.2 billion yuan in the quarter, BoCom said.
Fees and commissions, including from credit cards, distribution of mutual funds and insurance policies, gained 17.7 percent to 3.1 billion yuan. The bank aims to start its own insurance operation by the end of the year, taking a step closer to becoming a one-stop financial services firm, Vice President Dicky Yip said last week.
BoCom’s net interest margin, a measure of lending profitability, contracted to 2.21 percent in the first half, compared with 3.02 percent in 2008. The margin should improve in the third quarter as interbank interest rates rise while funding costs drop, Credit Suisse analysts Sherry Lin and Daisy Wu said in a report on Aug. 12.
Chinese banks paid 0.36 percent on demand deposits and 2.25 percent on one-year time deposits after the People’s Bank of China cut interest rates five times in the final four months of last year.
Concerned that too many loans may be stoking speculation on property and stocks, the China Banking Regulatory Commission last month required
the nation’s lenders to raise reserves to 150 percent of their non-performing loans by the end of this year, up from 134.8 percent at the end of June. BoCom set aside 2.6 billion yuan of provisions against soured debt in the first half, compared with 2.2 billion yuan a year ago. The lender earned 15.56 billion yuan in the first half, up 0.3 percent from a year earlier. Profit in the year-earlier second-quarter was 7.615 billion yuan.
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