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BEA profits plunge 38 percent

BEA profits plunge 38 percent

(22 August 2016 – Hong Kong) Bank of East Asia Ltd. (BEA) announced that first-half profit dropped 38 percent as China’s slowing economy dragged on lending and caused loan impairments to surge.

Net income fell to HK$2.1 billion (A$356 million) for the six months ended June from HK$3.35 billion a year earlier, the company said in a statement to the Hong Kong stock exchange on Friday.

Impairment losses on loans climbed 60 percent to HK$1.24 billion as profit at its China business slumped 56 percent, it said.

“The banking sector in mainland China continues to be challenged in this environment by slowing loan growth, compressed net interest margins, and increased default risk,” the company said in its statement. “BEA China has not been immune to these trends.”

Rising bad loans on the mainland add to challenges facing Chairman David Li at a time when the bank is facing a legal petition from Elliott Management that claims BEA has diluted minority investors and entrenched management control.

At a briefing with reporters following the earnings, Li said the allegations were “baseless” and the hedge fund’s actions were not in the interests of the bank’s shareholders. The petition filed by Elliott on 18 July would have no “material adverse impact” on the bank’s business and operations, Li said, adding that the bank will “vigorously oppose” the action.

“This is yet another attempt to put the bank into play and force a sale,” he said. “We have heard Elliott’s arguments before. Their tactics only seek to serve their own short-term self-interest.”

Li spoke at the briefing along with BEA executives including his sons Adrian and Brian, who are both deputy chief executive officers.

Brian Li said he was “cautiously optimistic” on nonperforming loans in China, though it was hard to say if the worst was over. The bank’s impaired-loan ratio increased to 1.23 percent at the end of June from 1.13 percent as end-2015, with the ratio for the China operation jumping to 2.8 percent from 2.63 percent, according to BEA’s earnings report.

BEA will continue to consolidate its outlets in China and expects to reduce its network by a further five sub-branches by the end of the year, David Li said. The bank had already achieved 23 percent of the HK$700 million of cost savings it’s targeting by the end of 2018, he said.

“The business and operating environment is expected to remain challenging in the second half of 2016,” BEA said.

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