Bloomberg News

Bank of China Profit Growth Slows, Missing Analyst Estimates

October 26, 2011

(Updates with analyst comment in fourth paragraph, share prices starting in sixth.)

Oct. 27 (Bloomberg) -- Bank of China Ltd. posted its slowest profit growth in nine quarters as government efforts to cool inflation curbed loan demand and higher interest rates drove up funding costs at the nation’s third-largest lender.

Net income increased 9.4 percent to 29.8 billion yuan ($4.7 billion) for the three months ended Sept. 30, the Beijing-based bank said in a statement yesterday. Profit missed the 31.6 billion-yuan median estimate of eight analysts surveyed by Bloomberg News. Fourth-ranked Agricultural Bank of China Ltd. said third-quarter profit gained 40 percent to 34.1 billion yuan.

The two banks and their larger local rivals have dropped an average 20 percent this year on investor concern that loans will sour as economic growth slows and the property market slumps, leading to defaults from manufacturers, developers, small companies and local governments. Agricultural Bank and Bank of China both said bad-debt ratios narrowed in the quarter.

“Improving loan pricing failed to offset the increase in funding costs,” Tracy Yu, a Hong Kong-based analyst with Deutsche Bank AG, wrote in a note.

Net interest income, or revenue from lending minus payments to depositors, rose 17 percent at Bank of China to 57.1 billion yuan. Net fee and commission income from issuing credit cards and distributing insurance policies increased 22 percent to 15.9 billion yuan, it said.

Agricultural Bank Gains

Bank of China fell 2.1 percent to HK$2.79 at 9:32 a.m. in Hong Kong today. The stock has slumped 32 percent this year.

Agricultural Bank jumped 3.6 percent to a seven-week high of HK$3.45, trimming its loss for the year to 11 percent.

The lender said net interest income rose 26 percent to 78.6 billion yuan, while fee income increased 53 percent to 17.7 billion yuan.

Agricultural Bank was the first Chinese commercial lender established during Communist rule. Led by Chairman Xiang Junbo, the bank had 23,468 domestic outlets at the end of June, more than any other Chinese rival.

China Citic Bank Corp., the banking unit of the nation’s largest state-owned investment firm, said third-quarter profit increased 41 percent on higher lending and fee income, beating the 7.6 billion-yuan median estimate in a Bloomberg survey.

Citic shares jumped 6.3 percent to HK$4.23, the highest level in more than two months.

Industrial and Commercial Bank of China Ltd., the country’s biggest lender, may say net income rose 26 percent to 53.7 billion yuan, according to the analysts’ median estimate. The bank is scheduled to report today after the market closes.

--Editors: Chitra Somayaji, Nathaniel Espino

To contact the reporter on this story: Stephanie Tong in Hong Kong at stong17@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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