New | China bad debts weigh down Bank of East Asia profits

Bank of East Asia yesterday said it is expecting a better performance in the second half as government policies to boost the economy kick in, after earnings fell 6 per cent in the first six months as a result of deteriorating credit quality on the mainland.

The bank yesterday announced net profit in the first half fell 6.3 per cent from a year earlier to HK$3.35 billion. Impairment losses on loans rose 144.7 per cent to HK$781 million. The bank's non-performing loan (NPL) ratio now stands at 1.03 per cent, with that for mainland climbing to 2.65 per cent.

BEA is among the banks most exposed to the slowdown on the mainland. Its customers in manufacturing, retail, wholesale and hotel business are among the ones hit hardest in the downturn.

But the slowdown has come as a boon for its operations in Hong Kong, where retail and private wealth business from mainland customers has grown as they pull out of the mainland to bank in Hong Kong. Last year, only 20 per cent of BEA's assets under management was attributed to mainland clients. The figure has now jumped to over 30 per cent.

On the mainland, a spike in yuan funding costs in February and March dented its customers' appetite for trade financing. Thinning net interest margins brought net interest income down to HK$$6.186 billion, a fall of 1 per cent from a year earlier.

While overall loan growth is still up, at 2.2 per cent, BEA has turned conservative with its mainland loans, which decreased 1.3 per cent.