Bank of China record profit buoys lenders

City A.M. Reporter
Bank of China, China’s fourth-largest bank by assets, posted a 29 per cent rise in third-quarter profit on strong lending and a resilient domestic economy, as concerns of a rise in future bad loans after a 2009 lending binge began to recede.

The strong results bode well for its planned $8.8bn (£5.5bn) rights issue, even as it also stands to benefit from a surprise interest rate hike by China’s central bank last week.

Bank of China’s results kick off the earnings season for China’s “Big Four” state banks, which are expected to post record quarterly profits on China’s robust economic growth and stable asset prices despite government cooling measures.

Chinese banks are also benefiting from a recovery in net interest margins as the government exits its monetary stimulus moves.

Bank of China, part-owned by Hong Kong tycoon Li Ka-shing, said its net profit rose to a record 27.22bn yuan (£2.58bn) during the July-September period from 21.1bn yuan a year earlier. The results beat an average forecast of 23.86bn yuan from five analysts surveyed by Reuters.
“The prospects for Bank of China look promising, as China stocks have staged a rally and corporate earnings are on the rise,” said Ryan Yen, a fund manager of Taipei-based Polaris. “Still, the biggest risk is if real estate prices fall by more than 30 per cent next year.”

Yen said he had reduced his holdings in Bank of China earlier this month, and plans to buy the shares at dips in future.

China’s cabinet said earlier in the day it will take measures to stabilise consumer prices and curb overly rapid increases of property prices in some cities. Bank of China shares ended 0.9 per cent lower in Hong Kong yesterday before the earnings were released.