BOC says subprime won't hurt earnings

By Mao Lijun (China Daily)
Updated: 2008-03-26 09:04

Bank of China (BOC), the largest holder of subprime-related assets in the country, said its revenue won't be affected by subprime debts in the future.

"The capital we've set aside is enough to cover possible losses from subprime debts and we have finished disposing of most risky subprime bonds," Li Lihui, president of BOC, said yesterday.

Although the US subprime crisis is deepening, the bank is confident about its future performance.

BOC reduced its investment in subprime asset-backed securities to $4.99 billion by the end of last year, accounting for 2.13 percent of its total investment securities, it said in its annual results yesterday.

The bank said it has set aside $1.295 billion as an impairment allowance to cover the possible decrease in value of subprime securities.

The lender has disposed of all subprime-related collateralized debt obligations, a high-risk subprime bond, it said in the report.

"The impact from the subprime crisis is in our control and if the US subprime mortgage market situation becomes more serious in the future, BOC will consider increasing the capital in provision," Zhu Ming, vice-president of the bank, said yesterday.

He said the US securities it holds have high credit ratings - 71.23 percent are rated AAA and 25.93 percent AA.

Analysts said the high ratings of its securities exposed the bank to low risk from the credit crisis.

But Li Lihui conceded the subprime crisis is a lesson in risk management and crisis control for Chinese banks.

He said risk awareness and management should be enhanced.

BOC yesterday posted 56.25 billion yuan ($7.99 billion) in net profit for 2007, a year-on-year increase of 31.33 percent.

Earnings per share were 0.22 yuan. Return on average assets hit a record high of 1.1 percent, up 0.14 percent compared with 2006.

"The loss from the subprime bonds only reduces BOC's 2007 earnings per share by about 0.05 yuan," Wang Qian, from Industrial Securities, said.

The bank had total assets of 5.99 trillion yuan at the end of 2007, with a core capital adequacy ratio of 10.67 percent and a capital adequacy ratio of 13.34 percent - much higher than the required 8 percent capital adequacy ratio for commercial banks.

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