Bank of China posts first half profits


The bank did not address the scandal at its branch in Kaiping or the firing of its former president from his posts in banking

HONG KONG, China -- The Bank of China posted a first-half profit of 7.03 billion yuan ($849 million) before tax, down 36.7 percent from the same time last year.

The bank is the country's biggest foreign-exchange institution. It came in with an operating profit of 21.4 billion yuan for the first half.

The Beijing-based bank is the parent of the Bank of China Hong Kong. That subsidiary is due to go public when its stock begins trading on Thursday.

A fund manager told CNN that the subsidiary will be unable to sustain its HK$8.50 pricing for institutional shareholders (full story).

Still on target

The bank's profits are the strongest of China's Big Four banks. China Construction Bank is the nearest, with pretax profit of 6.15 billion yuan for the first half of the year.

Bank of China Chairman Liu Minkang said in a statement that the bank can achieve growth of more than 5 percent for the full year.

"First we must fiercely grasp profits," he said. "Development is a basic principle. If there are no profits, then we cannot talk about development."

The Bank of China is expected to lead the way for China's big banks to sell stock. China Construction Bank may well be next to take to the market, because it has investment bank ties with Morgan Stanley.

Rival U.S. investment house Goldman Sachs and Swiss bank UBS Warburg won the concession to take Bank of China public, with its own investment-bank subsidiary.

The bank did not say its figures were directly comparable to last year's performance. But it posted a pretax profit of 11.1 billion yuan in the first half of 2001.

A decline in nonperforming loans

Cutting lines of business or expanding joint venture operations sometimes mean a company's figures do not relate exactly from one year to the next.

On the other hand, "pro forma" earnings have come under heavy criticism in the United States of late, where many companies have used the statements to manage their earnings.

The Bank of China said earlier this month that its nonperforming loans dipped 2.28 percent, or by 10 billion yuan ($1.2 billion), for the first half of the year.

In its first-half figures, it said its nonperforming-loan ratio was down 2.12 percentage points from the start of the year, to 25.4 percent of all loans.

That suggests the bank is reforming some of the questionable loans that analysts suggest plague China's bank system.

"The Bank has done much work in streamlining its banking operation and verifying statistics in the past six months," it stated on its Web site.

It said the "authenticity of assets quality" has become a key issue for the bank. The bank has a total of $130 billion in assets.

Cases of wrongdoing down

The Beijing-based bank wrote off 8.68 billion yuan in bad debt. But it reported only 21 cases of financial wrongdoing, down 46 percent from the prior year.

Its statement did not address the firing of its former president, Wang Xuebing, now under prosecution by Chinese authorities, or an embezzlement scandal at its Kaiping branch (full story).

The bank took a $20 million fine from U.S. and Chinese authorities at the start of the year. But it recently won $133 million in damages in a New York court (full story).

The bank created its Hong Kong subsidiary in October 2001 by rolling up its local operations. It is now the second-biggest bank in Hong Kong.