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BoCom sees slower profit growth, eyes overseas expansion

(Agencies)
Updated: 2009-03-23 10:47

Bank of Communications (BoCom), China's fifth-largest lender, expects profit growth to slow this year while loan growth should hold steady at around 23 percent, and will look to expand overseas despite the economic downturn.

The bank, in which HSBC Holdings has a significant stake, reported last week a 40 percent rise in net income in 2008, but a 2 percent dip in fourth-quarter profit.

Related readings:  BoCom net profit rises 40% in 2008  Bank of Communications Q4 profit dips 2%  HSBC aims to up stake in China's BoCom  Bank of Communications to join Hang Seng Index

"Profit growth will slow down (in 2009), but there will still be a rise in profits," Chairman Hu Huaibang said in an interview.

The lender also hopes to set up branches in Sydney and San Francisco, open a representative office in Ho Chi Minh City and upgrade its London office to a subsidiary, Hu said in the interview on last Friday.

BoCom also wants to set up a branch in Taiwan, regulations permitting, he added.

Hu, who was appointed to head the bank in September last year, was a former senior official with the China Banking Regulatory Commission and a former chairman of the supervisory board of the China Investment Corp (CIC), the country's sovereign wealth fund.

Investors are concerned that Chinese lenders will see a jump in non-performing loans this year on the back of the government's economic stimulus efforts, which call for banks to increase lending to businesses to revive cooling growth.

But Hu said the bank would be stringent about lending, with all large loans requiring approval from the bank's board.

In line with the government's stimulus plan, the bank will increase lending to industries such as railways, industries and construction, and will continue issuing high-return loans to small- and medium-sized businesses, Hu said.

In 2008, the bank issued loans amounting to 219 billion yuan ($32 billion), up about 23 percent from the year before. Its impaired loan ratio improved to 1.92 percent from 2.05 percent a year earlier.

In a statement last week on the outlook for 2009, the bank had warned investors that tougher economic conditions would put pressure on loan quality.

But Hu is confident that his bank will outperform its peers.

"What I meant by 'under pressure' was that if a company (borrower) has problems, our NPLs will rise, but it won't jump to the 5 percent or 10 percent level like in the past," Hu said in the interview.

"If the economy worsens, and if everyone is worse off, Bank of Communications should not be as badly hit as the rest. If the economy becomes better, and everyone makes money, we should be making more than the rest."

BoCom's overseas assets amounted to $21.9 billion in 2008, an increase of 26 percent from 2007.

The bank, in which HSBC holds 19 percent, has teamed up with the UK-based lender to set up a credit card company this year, Hu said.

"Right now, HSBC is going through a difficult time, but it has not cut its stake in our bank and has even pledged support. They like the prospects of China's economic growth and the bank's future outlook in China," Hu said.

Since the economic crisis hit, some foreign lenders have sold part or all of their stakes in Chinese banks such as Bank of China and China Construction Bank to raise cash to offset massive losses stemming from the collapse of the US housing market.

But HSBC, Europe's biggest bank, said earlier this month that it would increase its stake in BoCom by around 1 percent to the limit of the government's permitted.