More than HK$200 million has evaporated from Industrial and Commercial Bank of China (Asia)'s balance sheet, as structured investment vehicles (SIV) continue to suck profits out of banks possessing these struggling investments.

ICBC (Asia) - the Hong Kong-based subsidiary of the mainland's largest bank - announced yesterday that it has written off HK$252 million in SIV-related losses due to the global spread of US economic malady.

ICBC (Asia) Director Stanley Wong said that the bank holds $40 million in SIV investments.

"We only have one SIV in our portfolio," Wong told reporters at the bank's announcement of its 2007 results. "The provisions we've made are worth 75 percent of the total value of the SIV. We believe that is sufficient."

People walk past a branch of ICBC (Asia) in Hong Kong. The bank reported a net-profit rise of 29 percent in 2007. AFP

The lender's SIV, Cullinan Finance, is managed by HSBC. The troubled portfolio was restructured by HSBC last year, after the subprime crisis floored the value of these structural investment products.

Wong said the bank doesn't hold any collateralized debt obligations or asset-backed securities.

However shareholders of ICBC (Asia) won't be disappointed, as the lender's 2007 net profits climbed 29 percent to bring in HK$1.61 billion. The final dividend payment per share was set at HK$0.63, bringing the bank's total annual dividend for its shareholders to HK$0.86.

The bank's strong loan business was the major driver fueling ICBC (Asia)'s profits growth.

Net-interest income brought in HK$2.4 billion in 2007, representing a 29 percent jump over 2006.

ICBC (Asia) Chief Executive Officer Zhu Qi conceded that 2008 will be a tougher year for its lending business, but he remains confident that loan default rates will remain low.

"Our bank's default ratio has always been lower compared with our counterparts," Qi said. "The loan quality is sound because we are very conservative in our lending."

The impaired loan ratio of the bank declined from 1.2 percent in 2006 to 0.5 percent last year.

Stock-related income also increased 20 percent last year to HK$675 million. Yet, the total profit contribution from fee-based income dipped 4 percent from 2006, to 25 percent last year.

"We aim to expand our wealth-management business this year," Zhu said. The lender will try to boost the profit contributions from equity-related sales to at least 30 percent in 2008.

To better prepare for businesses from the Qualified Domestic Institutional Investor Scheme (QDII) and expand its yuan businesses, ICBC (Asia) acquired the Shenzhen-based Chinese Mercantile Bank last year. Zhu said they will strive to provide and diversify their fund products to better tailor to the needs of high-net-worth mainland customers.

The chief executive is confident that the booming yuan business will certainly turn Chinese Mercantile Bank into a major profit driver for ICBC (Asia).

The annoucement came after the market closed yesterday. On the day, ICBC (Asia) shares managed to claw up 2.6 percent, or HK$0.26, to HK$16.60, despite the tumultuous fall across the local bourse yesterday.

(HK Edition 03/14/2008 page2)