China slowdown hits BEA profits
(6 August 2015 – Hong Kong) The chairman and chief executive of the Bank of East Asia Ltd (BEA), Dr David K.P. Li, has said that while the bank has transformed its business over the past two decades, growing from strength to strength, China’s period of transition has hit its Mainland business profits this year.
Li said that as Mainland China leaders steer the economy onto the path of consumption-led growth, economic activity had slowed and many industries are under pressure due to the downturn in the business cycle.
“As we highlighted at our 2014 Results Announcement earlier this year, we are taking proactive measures to address the deterioration in the Mainland business environment.
“BEA China has adopted very prudent lending criteria, preferring safety over yield while waiting for the economy to recover,” Li said.
For the first six months of 2015, the Group achieved a profit attributable to owners of the parent of HK$3354 million (A$593.4 million), representing a decrease of HK$226 million or 6.3 percent, compared with the HK$3580 million earned in the same period last year.
Basic earnings per share were HK$1.28.
Annualised return on average equity and return on average assets were 9.2 percent and 0.8 percent, respectively.
During the first six months of 2015, the Group’s net interest income decreased by HK$62 million, or 1.0 percent, to HK$6186 million, primarily due to narrowing of net interest margins.
Net fee and commission income increased by HK$45 million, or 2.1 percent, to HK$2186 million, while net trading profits or losses recorded negative growth.
As a result, non-interest income decreased by HK$441 million, or 14.9 percent. Operating income decreased by 5.5 percent to HK$8699 million.
Total operating expenses fell by 5.6 percent to HK$4620 million.
Since the decrease in operating expenses was slightly higher than that of operating income, the cost-to-income ratio dropped from 53.2 percent in the first half of 2014 to 53.1 percent in the first half of 2015.
If the business tax and surcharges of China operations are excluded from operating expenses, the adjusted cost-to-income ratio would be 49.5 percent.
Operating profit before impairment losses was HK$4079 million, a decrease of HK$230 million, or 5.4 percent, when compared with the corresponding period in 2014.
Impairment losses grew by 147.1 percent to HK$782 million.
Deteriorating credit quality in Mainland China resulted in impairment loss on loans and advances rising by 144.7 percent to HK$781 million for the Group.
Operating profit after impairment losses was HK$3297 million, a decrease of 17.4 percent or HK$696 million.
“The fall in profit is due mainly to reduced earnings at our Mainland subsidiary,” Li said.
“BEA China was affected by the general business slowdown and the change in lending policy outlined above.
“In addition, net interest margin narrowed, following government moves to deregulate interest rates.
“Not unexpectedly, the weaker Mainland economy also had an impact on asset quality at BEA China.
“Meanwhile, our Hong Kong and International operations have avoided the downdraft from the Mainland.
“Both Hong Kong and International reported modestly higher profits for the first half of this year,” Li said.
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