Bank of East Asia Falls as Profit Misses Analyst Estimate: Hong Kong Mover

Bank of East Asia Ltd., Hong Kong’s third-largest lender, posted the biggest decline in almost two weeks after 2011 profit fell short of analyst estimates and its risk buffer shrank.

Net income rose to HK$4.36 billion ($562 million), or HK$1.96 a share, from HK$4.22 billion, or HK$1.92, a year earlier, the bank said in a filing to the Hong Kong stock exchange today. Profit missed the HK$4.63 billion average estimate of 18 analysts surveyed by Bloomberg. The core capital adequacy ratio shrank to 9.4 percent from 9.8 percent in 2010.

Shares (23) of the lender fell 2.8 percent to HK$29.75, the biggest decline since Feb. 1, lagging behind a 0.2 percent gain in the benchmark Hang Seng Index. The family-run bank led by 72- year-old David Li, which increased revenue by expanding in China and tapping cross-border funding demand from Hong Kong companies that have operations on the mainland, may need to increase capital to continue growing.

“Investors are worried that Bank of East Asia might need to raise funds and its credit quality in China might worsen,” Ronald Wan, a managing director at China Merchant Securities Co., said by telephone. “Bank of East Asia’s profit growth is at the low end of market expectations. Its need to raise capital might be reflected soon.”

The net interest margin, a measure of lending profitability, shrank to 1.75 percent from 1.78 percent a year earlier. Net interest income, or the difference between revenue from lending and payments on deposits, climbed 23 percent to HK$9.26 billion, while net fee and commission income rose 13.6 percent to HK$3.34 billion.

‘Comfortable’ Capital Ratio

“We’re constantly monitoring our capital ratio and continue to look for good financing channels, but we’re comfortable with our existing ratio,” Brian Li, a deputy chief executive officer, told reporters in Hong Kong today. “We have enough capital for our business development.”

Deputy CEO Samson Li said the bank will look into increasing capital “internally” and examine measures including adjusting its loan mix and selling non-core properties.

Pretax profit from China last year increased 71 percent to HK$2.44 billion.

To contact the reporter on this story: Stephanie Tong in Hong Kong at stong17@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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