Bank of China posts lower Q2 profit

A man is silhouetted in front of a Bank of China logo at its branch office in Beijing. The bank reported its slowest profit growth since the first quarter of 2013. [Photo/Agencies]

Bank of China Ltd reported its slowest profit growth since the first quarter of 2013 after bad loans rose to the highest level in more than five years and the lender set aside provisions for more soured debt.

Net income rose about 8.5 percent to 44.4 billion yuan ($7.2 billion) in the three months ended June 30 from 40.9 billion yuan a year earlier, based on half-year figures released by the Beijing-based company on Tuesday. That compared with the 44.9 billion-yuan median of 10 estimates surveyed by Bloomberg.

Bank of China more than doubled provisions for potential bad debt to 12.7 billion yuan in the second quarter from a year earlier as the economy cooled and the property market slumped.

Already trading at the cheapest price-to-earnings valuations of global banks, State-run lenders are bracing for more competition under President Xi Jinping's economic plans.

"The biggest concern for Bank of China is their asset quality," Chen Xingyu, a Shanghai-based analyst at Phillip Securities Research, said by phone.

"The trend is very obvious. We expect nonperforming loans to continue rising in the next two quarters."

Gluts in industries such as coal and sliding home prices and sales in some Chinese cities show the risk of bad loans spiraling in an economy projected to have the weakest full-year growth since 1990.

Bank of China and other Chinese lenders have this year proposed selling a record $63 billion of preferred and common stock to meet stricter capital requirements.

Bank of China's net income rose 11.2 percent to 89.7 billion yuan in the first half, according to the statement.

Net interest income increased 14 percent to 156.7 billion yuan, while net fee income from services such as credit cards and bond underwriting rose 14.6 percent to 52.1 billion yuan.

China's five biggest banks - ICBC, Bank of China, Agricultural Bank of China Ltd, China Construction Bank Corp and Bank of Communications Co - may report a 7 percent increase in combined net income to 924 billion yuan this year, according to analysts' estimates compiled by Bloomberg.

That would be the smallest gain in more than a decade.

Sour loans at Bank of China increased 17 percent from the end of last year to 85.9 billion yuan as of June 30, the highest since the end of 2008.

Nonperforming loans amounted to 1.02 percent of total advances.