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BoCom Profit Grows as Bank Boosts Fees, Writes Off Bad Loans

Aug. 22 (Bloomberg) -- Bank of Communications Co., the Chinese lender part-owned by HSBC Holdings Plc, reported a 13 percent increase in second-quarter profit as fee income surged and the bank wrote off bad loans.

Net income at the nation’s fifth-largest lender by market value climbed to 17.1 billion yuan ($2.8 billion) from 15.2 billion yuan a year earlier, based on figures announced yesterday by the Shanghai-based lender known as BoCom. That compares with the 16.6 billion-yuan median estimate of 10 analysts surveyed by Bloomberg News.

The bank bucked the trend of a slowdown in profit growth at smaller Shanghai Pudong Development Bank Co. and Industrial Bank Co. even as its lending margin contracted. BoCom wrote off 4.8 billion yuan of soured debt in the first half, limiting the increase in the value of nonperforming loans to 3 percent in the second quarter, according to Citigroup Inc. analyst Simon Ho.

“This is a low quality result because a huge write-off of NPLs masked the sizable pickup in NPL formation,” Ho wrote in a note. The outperformance compared with estimates came “mainly from non-interest income and provisions,” he wrote.

Nonperforming loans rose to 31.7 billion yuan as of June 30, compared with 30.74 billion yuan in March, BoCom said in yesterday’s statement.

BoCom shares fell 0.8 percent as of 10 a.m. in Hong Kong today, extending this year’s loss to 11 percent. Hong Kong’s benchmark Hang Seng Index slipped 0.1 percent today.

Slower Growth

Profit growth is easing at some Chinese banks as loan demand slows in an economy forecast by analysts in a Bloomberg survey to grow 7.5 percent this year, almost half 2007’s 14.2 percent pace. BoCom’s full-year earnings may increase by about 5 percent, a third of the growth rate in 2012, according to the average of analyst estimates in a Bloomberg survey.

Hong Kong-listed Chinese banks may report average second-quarter profit growth of 8 percent, down from 11.5 percent in the first three months, Sanjay Jain, a Credit Suisse analyst, forecast in a note on July 30. There is “potential for further deceleration” of profit in the second half of the year, according to the note.

Industrial Bank’s second-quarter net income increased 21 percent from a year earlier, slower than a 32 percent expansion in the first quarter, data compiled by Bloomberg show. Shanghai Pudong’s profit growth declined to 12.7 percent in the second quarter from 12.8 percent in the January-to-March period.

Margin Shrinks

In the first half, BoCom’s profit rose 12 percent to 34.8 billion yuan, according to yesterday’s statement. The bank’s net interest margin, an indicator of lending profitability, contracted 5 basis points to 2.56 percent after the central bank cut benchmark interest rates twice in 2012.

“Profits at BoCom grew more than expected as its lending margin wasn’t squeezed as much as other banks,” Rainy Yuan, a Shanghai-based analyst at Masterlink Securities Corp., said by phone. “Fee income also showed a strong increase.”

BoCom’s fee income from selling services such as wealth management products, credit cards and insurance jumped 30 percent to 7 billion yuan. Its net interest income from lending rose 11 percent to 33 billion yuan in the second quarter, helping net income growth outpace its 12 percent expansion in the three months to March.

To contact Bloomberg News staff for this story: Jun Luo in Shanghai at jluo6@bloomberg.net

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

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