Huge gain mainly due to absence of 2008 one-off booked charges

HONG KONG: Bank of East Asia Ltd (BEA) has reported a surge in net profit for 2009 to HK$2.57 billion from only HK$39 million a year earlier.

The 2008 figure was significantly dented by some HK$3.5 billion charges after the lender wrote off its entire investment in collateralized debt obligation (CDO).

Basic earnings per share reached HK$1.36, up from HK$0.02 in the previous year.

The full-year net profit was basically in line with expectations by analysts.

"This is an excellent result, given the difficult economic conditions during the first half of 2009," said Chairman David Li at a press briefing Thursday.

Looking ahead, Chairman Li said BEA will focus on boosting its operations in the Greater China markets.

BEA (China), the lender's operating unit on the mainland, "is ideally positioned to benefit from closer cross-boundary financial ties between Hong Kong and the mainland," he said.

Despite the profit jump, core earnings were not as inspiring as the net profit, particularly with regard to the bank's net interest income.

Due to a narrower net interest margin (NIM) under the low-interest environment, BEA's net interest income for the year slid 0.7 percent to HK$6.75 billion from the previous year, despite a 7.5 percent growth in loan volume.

Fee and commission income, another core income, managed to gain a slight 5.5 percent to HK$2.26 billion as demand for investment products improved along with the strong rally in the financial market during the second half of 2009.

"The results basically met our expectations," Terry Sham, Associate Director for Financial Institution Rating at Standard&Poor's, told China Daily.

Meanwhile, the tough business environment, particularly during the first half of 2009, took its toll on the quality of the lender's loan portfolio.

For the year, impairment losses on loans and advances nearly doubled to HK$1.11 billion from HK$558 million.

The overall impairment loan ratio stood at 0.99 percent at the end of 2009, up from 0.69 percent a year ago.

The increase in non-performing loans mainly came from the bank's operations in the US and Singapore, he said.

But the bank is hopeful that loan quality will improve this year, as the global economy is back on track to grow, he said.

BEA's total assets increased by HK$19 billion, or 4.5 percent, to HK$434 billion over the year.

Total outstanding loans rose 7.5 percent to HK$248 billion, while total deposits increased by 4.9 percent to HK$345 billion.

"We have adopted a conservative approach towards non-performing loans," BEA Deputy Chief Executive Officer Brian Li said, replying to questions about the surge in impairment losses on loans.

The bank declared a final dividend of HK$0.48 per share, bringing the total dividend for the year to HK$0.76 versus HK$0.28 in 2008.

On questions about the lender's capital needs, BEA Deputy Chief Executive Officer Brian Li said "there is no need for the bank to raise new capital in the short term, even after the implementation of the Basel 3 Accord", noting that BEA's capital adequacy ratio is currently high at 15 percent.

The Basel 3 Accord is a set of recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision, which is now in the process of formulation and is expected to impose tighter capital requirements on banks worldwide.

On speculation that Guoco Group Ltd, controlled by Malaysia's Quek Leng Chan, may offer to buy the company, BEA Chairman Li said Quek had never told him he wanted to buy BEA. "Mr. Quek is a 'good friend' and a long-term investor," he said.

Guoco currently owns a 7.65 percent stake in the bank, after it recently bought additional shares in the Hong Kong lender in several counts.

(HK Edition 02/12/2010 page4)