HONG KONG: Bank of Communications (BoCom), the mainland's fourth-largest lender, posted a 40.05 percent earnings growth last year, but its fourth-quarter profits dropped on provisions.

The lender has kicked off the earnings season for mainland financials with relatively bright results. Full-year net earnings rose to 28.39 billion yuan from 20.27 billion a year earlier, beating the higher-end of market estimates.

Its net interest income climbed 22.1 percent to 65.86 billion yuan, thanks to the widened net interest margin (NIM), which went up 17 basis points, to 3.02 percent; outstanding loans and advances to customers totaled 1.3 trillion yuan at the end of the year, representing an increase of 224.1 billion yuan, or 20.29 percent.

Net fee and commission income grew 24.55 percent, to 8.84 billion yuan. During the same period, the bank's income tax expense dropped substantially-by 32.51 percent, or 3.48 billion yuan-to 7.23 billion yuan, due to the lowered effective tax rate.

Worried by mounting uncertainties about the health of the economy and fast loan growth, BoCom made significant provisions, lifting the provision coverage of impaired loans to 166.1 percent from 142.5 percent a year earlier. The bank's impaired loan ratio lowered by 13 basis points, to 1.92 percent.

Its total provision for impaired loans increased by 67.55 percent to 10.69 billion yuan. BoCom vice president and chief financial officer Yu Yali said the bank had booked a 4.8 billion yuan provision in the fourth quarter, of which an additional special provision of 2.012 billion yuan was allocated when the lender saw certain industries were at high risk.

The bank's fourth-quarter earnings dropped to 5.67 billion yuan from 5.79 billion over the corresponding period last year on provisions. Narrowed NIM after interest rate cuts by the People's Bank of China also contributed to the decline.

"The NIM contracted at a fast pace during the fourth quarter," Yu told reporters yesterday. "It's expected to narrow further this year."

BoCom will adjust its loan combination to cope with the lowered margin, she said. She added that the bank is likely to increase lending to small- and medium-sized enterprises and offer more medium- to long-term loans, in an effort to boost its credit card and mortgage businesses.

Beijing, meanwhile, is encouraging mainland banks to increase new loans to support a 4 trillion yuan stimulus package. BoCom vice president Qian Wenhui said the bank will be selective in its credit business.

"We intend to provide credits for infrastructure projects," Qian said. "We will also consider the profitability of these projects and cash flow." At the same time, he said, BoCom will also tighten its lending to high-risk and high-energy consumption projects.

BoCom Chairman Hu Huaibang said the bank's senior management will have their salary cut by 10 percent this year. "We have the social responsibility to help weather the financial crisis," he explained.

Hu added that HSBC, which owns a 19 percent stake in BoCom, has no plan to sell its holding.

He expects HSBC to bolster its capital strength after the rights issues. He also hopes BoCom and HSBC will continue their cooperation in exploring the credit card business and other aspects on the mainland.

(HK Edition 03/19/2009 page16)