BOC Hong Kong (2388) H1 2014 earnings summary

Executive summary

• H1 2014 profit attributable to equity holders reached HKD 12.1bn, up 7.4% YoY and a new interim high, supported by core income growth.

• Net operating income before impairment allowances rose 9.4% to HKD 21.6bn; net interest income growth offset weaker other operating income.

Financial highlights

• Net interest income rose 17.4% YoY to HKD 15.7bn; net interest margin improved 7 bps, supported by higher-yielding assets and growth in average interest-earning assets.

• Non-interest income fell 7.2% to HKD 6.0bn as other operating income declined 33.8%; net fee and commission income increased 2.9%.

• Operating expenses rose 9.2% to HKD 6.2bn; impairment allowances recorded a net charge of HKD 379mn, up 2.2%.

Outlook and guidance

• Higher funding costs and declining RMB rates may pressure NIM; balance-sheet mix optimization and prudent deposit/loan spread management aim to keep margins relatively stable.

• H2 loan growth was expected to slow as demand from major Chinese corporates in Hong Kong eased; management aimed to sustain balanced, stable lending growth for FY.

• Management expected RWA to grow more slowly than lending through customer selection, risk-weighted targets and balance-sheet optimization.

• Mainland China classified/impaired loans were expected to trend upward in H2, including at Nanyang Commercial Bank (China), though the group impact was expected to be not material.