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October 29, 2009

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BoCom reports flat earnings

THE Bank of Communications, China's fifth-largest lender, posted a flat quarterly net profit as lower margins offset the benefit of loan expansion, but analysts expect profitability to improve as the economy recovers.

BoCom, nearly one-fifth owned by HSBC Holdings Plc, earned 7.32 billion yuan (US$1.07 billion) in the quarter ended September 30, compared with a net profit of 7.2 billion yuan a year earlier, the lender said in an announcement filed to the Hong Kong Stock Exchange.

BoCom and other Chinese lenders have been hit by shrinking margins following five interest rate cuts since last September as the government spurred lending to sustain growth in the global economic crisis.

Banks' net interest margins had narrowed to about 200 basis points on average versus more than 300 basis points last year, said Jin Lin, an analyst at Oriental Securities Co.

The margin pressure has begun to ease as China tightens its loose monetary policy, but loan growth has also slowed in the second half of the year.

"BoCom's numbers don't look so good, if you compare them with its peers," said Ivan Li, an analyst at Kim Eng Hong Kong.

"I'm positive about China's banking sector, based on a few factors, including rebounding net interest margin, improving macroeconomic conditions, and smaller-than-expected bad debt provision," Li said.


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