Bank of East Asia's 1H15 net profit slid down 6% to HK$3.3b

It's been plagued with margin pressure from China.

Bank of East Asia reported 1H15 net profit of HK$3,354m, +9% h/h, -6% y/y and 12% above Barclays' estimates.

According to a research note from Barclays, this is mainly due to lower-than-expected tax expense, property/fixed asset disposals and valuation gains (totalled HK$452m).

PPOP was 1% below expectations, as strong cost control offset weak revenue momentum.

Meanwhile, revenue declined by 4% h/h and 15% y/y. China PBT declined by 19% h/h and accounted for 19% of group PBT in 1H15.

Here's more from Barclays:

Asset quality deterioration in China: BEA’s NPL ratio rose to 1.03% (2H14: 0.62%) led mostly by rise in NPL balances in Mainland China which rose to HK$3bn (2H14: HK$1.8bn). China’s NPL ratio rose from to 1.83% (2H14: 0.99%).

Margin pressure and contracting loan book in China: Net interest income declined 4% h/h, likely driven by margin compression in China reflecting the impact of interest rate cuts.

We are awaiting the reported net interest margin from management. Gross loans rose by 2% h/h, driven by mortgages which rose sharply +21% h/h and loans to stockbrokers in Hong Kong (up 5 fold). Loans for use in Mainland China contracted by 2.2% h/h and accounted for 41% of total loans.

Strong fee income growth: Fee income rose by 9% h/h, driven by brokerage (+38% h/h), trade finance (+27% h/h) and loan related (+7% h/h) fees.