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Bank of China's Quarterly Earnings Jump 85%

Bank of China, the country's second-biggest lender, posted an 85 percent jump in first-quarter profit, driven by strong fee income and a lower tax rate.

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January-March earnings were 21.7 billion yuan versus 11.7 billion yuan a year earlier.

The company also said it had reduced its subprime mortgage-related debt securities to $4.4 billion from $5 billion.

The impairment allowance for the securities was $1.5 billion by the end of March, the company said.

As of March 31, Bank of China said the carrying value of US Alt-A mortgage-backed securities was $2.2 billion, representing 0.9 percent of the group's investment securities.

Bank of China, hardest-hit among the country's big banks by subprime exposure, said last quarter it held $5 billion worth of related asset-backed securities at the end of 2007, or 2.13 percent of its investment securities, and booked $1.58 billion in provisions and markdowns on the holdings.

The company's shares have risen by a third since a 2008 low on March 18, but are up only 2.4 percent so far this year.

Shares of rival Industrial and Commercial Bank of China (ICBC) are up about 10 percent so far this year.

The benchmark Hang Seng Index is down 8 percent this year.

Bank of China's first quarter net interest income rose 18.7 percent to 40.81 billion yuan.

Net fee and commission rose 82.9 percent to 9.45 billion yuan, the company said.

Chinese banks are working to diversify their revenue streams away from an historical dependence on lending to state-owned companies.

On a price to earnings basis, Bank of China trades at 12.3 times 2008 earnings, ICBC trades at 16.8 times.

After a bumper 2007, Chinese banks are expected to face a tougher market in 2008 as Beijing imposes curbs on lending and takes other steps aimed at heading off resurgent inflation.

Slower loan growth means borrowers in key sectors such as real estate risk defaulting as the weakening global economy takes its toll, which could increase non-performing loans in 2008, analysts have said.