People walk past a branch of Fubon Bank in Hong Kong. Zhang Ting

The Taiwan-funded and Hong Kong-listed Fubon Bank recorded a 41 percent increase in its net profits last year, despite massive writedowns that totaled HK$252 million.

The writedowns came from collateralized debt obligations (CDOs) and structured investment vehicles (SIVs).

Fubon booked HK$460 million in net profits behind strong growth in fees income, securities-investment gains and net-interest income. The handsome incomes helped offset the HK$90 million in CDO writedowns and HK$162 million in SIV writedowns.

"CDOs and SIVs are now liquidity problems rather than rating problems," said James Yip, executive director of Fubon.

He said the bank may need to increase provisions in the future.

The bank currently holds CDOs worth $30 million, and the bank's two SIV investments are worth $35 million.

Profit segments

The bank's net-interest income increased 22.5 percent to HK$854 million, driven by a 14 percent growth in loans and an increase in its net-interest margin - which improved from 1.44 percent to 1.64 percent.

Non-interest income increased 42.9 percent to HK$587 million, boosted by a 100 percent jump in net fees and commission gains from the strong stock market last year.

Meanwhile, Fubon booked HK$132 million in profits from sales of securities in the stock market.

The bank's capital adequacy ratio dropped from 16.6 percent to 14.42 percent, while return on equity improved from 8.47 percent to 11.43 percent.

Mainland expansion

Lee Jin-yi, managing director and chief executive officer of Fubon, said the lender is keen on expanding in the mainland market.

"The Closer Economic Partnership Arrangement (between Hong Kong and the mainland) has provided a good path for us to invest on the mainland," Lee said. "If cross-Straits direct links are really established, Fubon can develop into a regional platform that facilitates consumer finance, wealth management and corporate finance business by providing unique products to our customers."

Fubon has aggressively tried to tap into the mainland market. Media reports said the bank is in talks to acquire a 20 percent stake in Xiamen City Commercial Bank.

However, existing Taiwanese regulations prohibit Taiwanese banks from acquiring stakes in mainland counterparts.

(HK Edition 03/12/2008 page2)