Excluding write-back and impairment allowance factors, net operating income up only 2.1%

Bank of China Hong Kong expects the pressure on interest margins to ease this year as it reported 311 percent growth in net profit for 2009 due mainly to the reversal of previous impairment allowances.

The blue-chip lender booked a net profit of HK$13.7 billion last year, up from the HK$3.3 billion in the previous year.

The surge in earnings was mainly due to a write-back in 2009 against a huge write-down in its loan portfolio and securities investments in 2008.

The lender booked a net write-back of HK$1.2 billion 2009 versus a net impairment allowance of HK$12.6 billion the previous year.

Excluding the write-back and impairment allowance factors, net operating income gained only 2.1 percent to HK$26.1 billion from HK$25.5 the previous year.

BOC blamed the squeeze on interest margins for the slow growth in operating income.

Net interest income, the key source of revenue, dropped 11 percent to HK$17.9 billion in 2009 despite 5.4 percent growth in the average interest-earning assets, which amounted to more than HK$1.06 trillion by end-2009.

The decline in net interest income was due mainly to a 31 basis-point contraction in the bank's net interest margin to 1.69 percent amid a low-interest-rate environment.

However, Vice-chairman and CEO He Guangbei said that the pressure on interest margins has been easing from the second half of last year, noting that bank's net interest margin shrank only 13 basis points in the second half.

"The improving trend could continue this year," he told a press briefing for the bank's final results Tuesday.

However, the executive remains cautious about a potential rebound in net interest margins.

"It remains to be seen whether net interest margins will rebound this year, as competition among banks for mortgage and corporate loans remains fierce," he said.

A 38.4 percent surge in operating expenses was due mainly to the costs incurred from the settlement of the Lehman Brothers minibonds dispute, the lender said.

Meanwhile, net fees and commission income, another major source of revenue, grew 25.7 percent to HK$6.5 billion, thanks to stronger income from its stock brokerage business and higher commission income from lending business.

Looking ahead, the bank expects its lending business to grow further this year as the economy continues to recover.

"There will be more opportunities for loan growth this year as economic activities are expected to increase," He Guangbei said.

He also expects the lender's yuan business in Hong Kong and its operations on the mainland to grow further this year.

He reiterated that the bank has no intention of disposing of its stake in Bank of East Asia, saying that this is a good investment with great potential.

Meanwhile, He disagreed with the notion that a potential reversal in property prices will likely have an impact on loan quality of BOCHK, a leading mortgage loan provider in the city.

"Mortgage loans are the safest lending - even during the Asian financial crisis in 1997-08," He said, noting that the lender's problem loans accounted for only 0.04 percent of its mortgage portfolio.

(HK Edition 03/24/2010 page2)