Bank of Communications (BoCom), the mainland's fifth-largest lender, reported a 42.7 per cent increase in first-quarter earnings yesterday, powered by robust loan growth in the booming economy.

BoCom, which is 19.9 per cent owned by global bank HSBC Holdings Plc, said it earned 2.9 billion yuan (US$361.6 million) in the first three months of this year.

Analysts expected strong earnings growth from BoCom, as loan growth and fee income kept rising amid the mainland's economic boom, along with improving credit quality.

BoCom's earnings are expected to jump about 23 per cent to 11.4 billion yuan (US$1.43 billion) this year, according to the consensus forecast of 16 analysts surveyed by Reuters Estimates.

"We maintained healthy growth in both loans and deposits in the quarter, and the structure of our loan customers has improved," the bank said in a statement.

It reported net interest income, derived from lending, of 8.79 billion yuan (US$1.09 billion), compared with 7.36 billion yuan (US$920 million) in the year-ago period.

Strong loan growth did not translate into higher bad loans, as the bank's non-performing loan ratio fell to 2.14 per cent at the end of the first quarter from 2.37 per cent at the end of 2005.

"We expect that loan growth in the full year 2006 will be at least 18 per cent to 20 per cent, a pace similar to last year's," said executive vice-president Peng Chun, adding that growth would mostly stem from a healthy macroeconomic situation.

Acquisition & expansion

Hong Kong-listed shares of the Shanghai-based bank soared 38 per cent in the first three months of 2006, compared with a 6 per cent rise in the Hang Seng index during that time.

BoCom shares have nearly doubled since the bank went public at HK$2.5 a share last June. Shares of China Construction Bank, the mainland's third-biggest lender, have risen about 43 per cent since its US$9.2-billion IPO in October.

BoCom said its capital adequacy ratio stood at 11.02 per cent at the end of the quarter, well above the 8 per cent level specified by international Basel banking standards. Peng said this was high enough to support the bank's business development in the next two to three years.

Although many mainland banks have bad loan problems, BoCom is widely viewed as one of the healthiest banks, and its earnings are calculated under international accounting standards.

"Our capital adequacy ratio is very high, so we have no plan for a domestic IPO at present, but we may consider it at a proper time in the future," Peng said, declining to give a timeframe.

He noted that his bank had been considering the purchase of a good-quality commercial bank for business and network expansion, but he declined to confirm media reports that BoCom wants to bid for a stake in small Shenzhen Commercial Bank.

BoCom aims to help its domestic clients invest in overseas capital markets and has been expanding its wealth management business this year.

"We have applied to regulators for qualified domestic institutional investor (QDII) status," said Dicky Yip, executive vice president in charge of retail business.

"First we need the qualification, then we will apply for an investment quota," said Yip, a former HSBC China chief executive, referring to the QDII programme which Beijing launched in April to let domestic banks and insurers invest in overseas markets.

(HK Edition 05/24/2006 page3)