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BoCom Q4 profit falls on bad loan provisions

By Luo Jun | March 19, 2009, Thursday | Print Edition

BANK of Communications Ltd, China's fourth-largest lender by market value, posted its first quarterly profit drop in nearly three years as a slowing economy forced it to make more provisions for bad loans.

Net income dropped to 5.67 billion yuan (US$830 million) in the three months to December 31 from 5.79 billion yuan a year earlier, based on figures released by the Shanghai-based company, also known as BoCom, in a statement yesterday. That beat the average 4.97 billion yuan estimate of 26 analysts in a Bloomberg News survey.

Chairman Hu Huaibang, who joined BoCom in September, faces the risk of rising defaults among borrowers and falling demand for wealth management services. A drop in the nation's key interest rates as the central bank attempts to revive an economy growing at the slowest pace in seven years is also hurting the profitability of loans.

"The fourth-quarter drop is just the beginning of the downhill slide," said Wang Yihuan, a Beijing-based analyst at China Asset Management Co, the nation's largest asset manager. "With the worsening of asset quality, the impact of rate cuts yet to kick in and potentially sustained weak demand for fee-based services, 2009 is quite unpromising."

Pretax profit was 6.13 billion yuan, below analysts' estimates of 7.03 billion yuan. The lender may post a 10-percent drop in profit this year after tripling earnings since 2005, according to analysts' forecasts.

BoCom, the first to report results among the nation's six largest publicly-traded banks, posted a 40-percent gain in net income for 2008 to 28.4 billion yuan, about half the pace of growth a year earlier.

BoCom rose 1.9 percent in Hong Kong trading yesterday to HK$5.25 (68 US cents), before the results were announced. They have lost 6.1 percent in Hong Kong while gaining 24 percent in Shanghai this year.

Falling exports dragged China's economic growth to 6.8 percent in the fourth quarter and cost the jobs of 20 million migrant workers. The industry ministry says 7.5 percent of small and medium-size firms closed or halted business by the end of 2008.

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