Bank of East Asia Ltd, Hong Kong's third-largest lender by market value, posted a record 29 percent rise in its first-half profit on strong growth from interest income, fees and commission.

Profit attributable to owners reached HK$2.71 billion, or HK$1.24 a share, compared with HK$2.1 billion or HK$0.96 a share during the corresponding period a year ago, the bank said on Thursday as it released its result for the first six months of 2011.

The result was better-than-expected, beating an average estimate of HK$2.08 billion by seven analysts surveyed by Bloomberg News.

Net interest income, the major source of revenue, climbed 19.9 percent to HK$4.4 billion. The net interest margin (NIM) - the lending rate minus the deposit rate - remained at 1.73 percent compared with the second half of last year but lower than the 1.84 percent recorded in the first half of 2010.

Total loans and trade bills increased to HK$351 billion at the end of June 2011, up 25 percent from a year ago.

Non-interest income, or net fee and commission income, surged 28.4 percent to HK$2.2 billion.

The bank declared an interim dividend of HK$0.43 per share, up from the HK$0.38 it announced last year.

"We remain cautiously optimistic regarding the business outlook for the remainder of the year. While we note the headwinds in overseas markets, we are confident that consumer demand and investment opportunities will continue to sustain the local and mainland economies," said David Li, chairman & chief executive of the group.

The lender has been building up its network on the mainland for more than two decades and has seen dramatic growth in the referral business from its mainland outlets to its Hong Kong and overseas units. Pretax profit at the Bank of East Asia (China), the wholly-owned subsidiary on the mainland, jumped 64 percent to HK$1.28 billion, representing 36 percent of the total.

Shares of the lender rose 2 percent to HK$29.9 by the end of Thursday's trading. The bench mark Hang Seng Index retreated 0.5 percent to 21,881.

Major Hong Kong banks have been reporting their first-half results in recent weeks. HSBC Holdings Plc posted a 35 percent hike in its interim net profit to $8.9 billion but said it plans to axe 30,000 jobs by 2013. Hang Seng bank reported a 16 percent rise in its net profit to June 30 of HK$8.06 billion. Standard Chartered, the Asia-focused bank, posted a record first-half net profit of $2.52 billion, up 20 percent year-on year.

The low interest rate environment and persistent competition has continued to exert pressure on lending yields, however. According to estimates by Credit Suisse, sector NIM fell to 1.23 percent as of March this year, compared to nearly 2 percent three years ago.

Franco Lam, analyst with Credit Suisse, expected the sector's NIM to decline further.

"In the absence of rate hikes in the near term, the ability for banks to re-price on lending will depend on new lending growth," wrote Lam in a July 26 sector research report.

joyli@chinadailyhk.com

China Daily

(HK Edition 08/05/2011 page2)