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BOC to trim lending in second half

By Wang Bo (China Daily)
Updated: 2009-08-28 08:13

The lending surge in the first half has trimmed the bank's capital adequacy ratio to 11.5 percent. [CFP]

Bank of China (BOC), the nation's third largest lender by assets, expects to maintain a steady credit expansion this year, but the lending pace is likely to slow in the second half, a senior bank official said yesterday.

"Market demand for loans will be lower in the second half, and the bank's loan growth for this year will outperform the industry average," Li Lihui, president, BOC, said.

The Beijing-based bank advanced some 900 billion yuan ($131.75 billion) as new loans in the first six months, more than the amount lent by any of its Chinese peers for the same period. Chinese banks extended a record-setting 7.4 trillion yuan in new loans during the first half, in response to the government's call to back the nation's stimulus moves.

The lending surge in the first half has trimmed the bank's capital adequacy ratio to 11.5 percent at the end of June from the 13.4 percent six months ago, causing speculation that the bank might launch new fund-raising plans to boost capital base in the second half.

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"Besides the 40 billion yuan subordinate debt issued recently, we are considering a comprehensive capital raising plan, which is expected to come out later this year ," Li said, without elaborating.

BOC, the nation's largest foreign-exchange lender, said its net profit in the first half was 41.12 billion yuan, down 2.5 percent from a year earlier. The amount was, however, a significant rebound from the second half of 2008 when the global financial crisis was in full swing.

Net interest income for the period fell 8.3 percent from a year earlier to 74.7 billion yuan, as the bank's net interest margin, a measure of profitability, narrowed by 68 basis points in the six months to June following the nation's massive interest rate cut in the second half of 2008.

"The bank's decline in net profit was largely due to the combined effect of shrinking interest margin and depressed foreign exchange business," said Zhu Min, vice president, BOC.

Despite the massive lending in the first half, the bank's non-performing loan ratio dropped to 1.8 percent at the end of June, compared to the 2.7 percent six months ago, while bad loan coverage ratio increased to 139 percent by June, 17.2 percentage point higher than the level at the end of last year.