Bank of East Asia Reports Record Profit as Li Reign Extended

Aug 01, 2014 3:58 am ET

(Updates shares in fifth paragraph.)

Aug. 1 (Bloomberg) -- Bank of East Asia Ltd., Hong Kong’s largest family-run lender, reported a record half-year profit and extended the tenure of David Li, 75, as chief executive for another three years.

Net income for the January-to-June period increased 6 percent to HK$3.58 billion ($462 million), or HK$1.48 a share, from HK$3.376 billion, or HK$1.43 a share, a year earlier, the bank said in a filing to Hong Kong’s stock exchange today. That exceeded the median HK$3.31 billion estimate of three analysts surveyed by Bloomberg.

Controlled by Li’s family, Bank of East Asia remains one of the few independent Hong Kong lenders, with rival Wing Hang Bank Ltd. set to be taken over by Oversea-Chinese Banking Corp. after a $5 billion offer succeeded this week. Lending growth in Hong Kong helped to support profit as bad loans rose in China, where the economy slowed and the property market slumped.

“The street continues to underestimate this bank,” Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia, said by e-mail today. “Bank of East Asia has slowed down onshore lending in China this year, in favor of booking offshore loans to the bank’s top mainland clients. This is smart.”

The company’s shares fell 0.5 percent to HK$33 as of 3:46 p.m. local time, less than the 1 percent decline in the benchmark Hang Seng Index.

Mainland ‘Ripples’

Outstanding loans and trade bills in Hong Kong rose 8.8 percent in the first half from the end of last year, the company said, compared with loan growth in China of 2.2 percent In the mainland, “ripples” from government efforts to regulate shadow banking saw the bank’s bad-loan ratio climb to 0.74 percent from 0.49 percent, it said.

In China, “asset quality is likely to remain under pressure” in the second half and management will “take proactive measures to mitigate credit risk,” the bank said in the statement.

In 2013, Bank of East Asia posted a record full-year profit, driven by wider lending margins. Today’s statement showed its net interest margin in China fell by 24 basis points to 2.22 percent in the first half of 2014 from the second half of last year.

Li’s Sons

Besides extending Li’s term through March 2018, the company said today that it had appointed two of his sons, Adrian Li, 40, and Brian Li, 39, as executive directors.

In February, their father said any potential buyer of Bank of East Asia would have to pay 3 to 4 times book value, the South China Morning Post reported. The bank trades at about 1.2 times, data compiled by Bloomberg show.

The lender “has the largest exposure to mainland China among peers and is more susceptible to slowing loan growth and margin pressure from looser monetary conditions in China,” Sharnie Wong and Evian Wong, Hong Kong-based analysts at Barclays Plc, wrote in a note before the result.

Bank of East Asia has more than 130 outlets in China, Macau and Taiwan, according to its website. China accounted for 41 percent of first-half operating income, today’s statement showed.