Bank of Communications Has Unexpected Profit on Loan Growth

  • Higher loans, fee income outweigh surge in bad-debt charges
  • Bank's bad-loan coverage ratio nears regulatory minimum

Bank of Communications Co., China’s fifth-largest lender, reported an unexpected 1.4 percent increase in fourth-quarter profit as higher income from loans and fee-based services offset surging bad-loan charges.

Net income at the Shanghai-based bank known as Bocom rose to 14.5 billion yuan ($2.2 billion) in the three months ended Dec. 31 from 14.3 billion yuan a year earlier, according to figures derived from full-year numbers filed to the Hong Kong exchange on Tuesday. That exceeded the 13.4 billion yuan average estimate of 18 analysts surveyed by Bloomberg.

Bocom, the first among China’s five biggest banks to report earnings, set aside 7.5 billion yuan of provisions in the quarter -- almost double from a year earlier -- to account for soured credit, which is rising as the nation’s economic growth slows. Even so, the lender’s bad-loan coverage ratio declined further to just above the regulatory minimum, signaling a drag on future profits from the need to set aside additional reserves.

“Nonperforming loans are on the rise and this is an industry trend,” Yang Dongping, Bocom’s chief risk officer, said at a press conference in Hong Kong, citing higher risks from small businesses and industries burdened with overcapacity. “This rising trend will continue this year. We think we are doing fine within the industry and it is still controllable.”

Interest Income

Fourth-quarter numbers were derived by subtracting nine-month figures from the full-year results reported by Bocom. For all of 2015, profit rose 1 percent to 66.5 billion yuan, according to the statement, as the bank boosted mortgages and lending to small businesses.

Net interest income in the fourth quarter rose 12 percent to 36.2 billion yuan from a year earlier, while fee-based income rose 15 percent.

The bank’s nonperforming loans amounted to 56.2 billion yuan as of Dec. 31, an increase of 31 percent from a year earlier. Its bad-loan provision ratio dropped to 156 percent at the end of last year from 179 percent in 2014. The regulatory minimum is 150 percent.

Shares of Bocom, which is about 19 percent owned by HSBC Holdings Plc, have lost 11 percent in Hong Kong this year. The benchmark Hang Seng Index dropped 7.1 percent.

HSBC’s holdings in Bocom have been in focus after rival Citigroup Inc. sold its stake in China Guangfa Bank Co. HSBC is the only global bank that has retained a major holding in a big bank in China after earlier exits by the likes of Bank of America Corp. and Goldman Sachs Group Inc.

HSBC will maintain its stake and continue an alliance with its Chinese partner after ending a credit-card venture, the London-based bank’s Asia Pacific Chief Executive Officer Peter Wong said March 5.

— With assistance by Jun Luo

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