23 August 2019
Brian Li says BEA will be more proactive in dealing with non-performing loans in the second half. Photo: HKEJ
Brian Li says BEA will be more proactive in dealing with non-performing loans in the second half. Photo: HKEJ

BEA eyes cross-border lending amid souring China asset quality

China is likely to experience deteriorating asset quality amid slower economic growth and disruptions to the capital chain, Bank of East Asia Ltd. (BEA) (00023.HK) said on Friday.

Deputy chief executive Brian Li said BEA was cautious about asset quality in the first half, resulting in slower lending activity. He said the bank will proactively deal with non-performing loans in the second half.

“We have also shifted our focus to cross-border lending from onshore loans,” he said.

In a stock exchange filing Friday, BEA reported impairment losses of HK$316 million (US$40.62 million) in the first half, up from HK$183 million in the same period last year.

Li said the increase was due to a syndicated loan from a mainland company in Taiwan and another from a Singapore firm.

For its mainland China business, the first-half impairment loss was 50 percent down from the second half last year.

Li expects cross-border lending to help lower BEA’s impairment risks as 70 percent of its business is conducted via Hong Kong.

“In the first half, we limited our property lending exposure to third and fourth-tier markets. We found first and second-tier cities more secure and they have a deeper market,” Li said.

Also, BEA tightened lending to the commodities sector and to companies saddled with overcapacity.

Net profit for the China business surged 35 percent to HK$1.17 billion but net interest margin (NIM) fell 0.24 percentage points to 2.22 percent.

The fall in NIM was mainly due to a high internal lending rate in the second half last year and a competitive deposit environment in the first half.

However, Li expects NIM to stabilize in the second half as pressure on funding costs eases. There will be more room for lending as changes to loan-deposit ratios come into effect.

From July 1, lenders can include negotiable certificates sold to companies or individuals in calculating their loan-to-deposit ratio, the China Banking Regulatory Commission said in a statement on June 30.

Also, they can also exclude loans advanced to small enterprises and the rural sector that are backed by bonds. Bank lending is capped at no more than 75 percent of deposits to prevent overextension of credit.

“NIM in Hong Kong fell as funding cost surged in the first half,” deputy chief executive Adrian Li said.

“We tried to pass the cost to our clients but it takes time,” he said.

The overall NIM is expected to improve this year as deposit rates ease in the second half.

BEA saw its overall NIM slip 0.19 percentage points to 1.79 percent. Its interim net profit rose 6 percent to HK$3.58 billion.

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Ayishah Ma is a financial reporter on Greater China issues.

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