The Bank of East Asia is reorganising its mainland business after suffering a stunning loss in the world’s second-largest economy as efforts to grow its loans in lower tier cities backfired amid delinquencies.
The 101-year old Hong Kong-based lender will shift its expansion towards digital banking and step up its efforts in Tier-1 cities to reduce the risk of non-performing loans on its books, co-chief executive Brian Li said. The decision follows a slump in 2019 earnings to the lowest since the depth of global financial crisis in 2009.
Profit fell by 50 per cent to HK$3.26 billion (US$420 million) last year or HK$0.89 per share, the bank announced on Wednesday. In mainland China, it lost HK$3.55 billion after booking a five-fold jump in provisions for bad loans to HK$7.25 billion. Hong Kong generated a 16.5 per cent increase in profit to HK$5.795 billion.
“We believe the worst is over as we have already made sufficient provision last year,” co-chief executive Brian Li Man-bun said in a teleconference on its financial results. “The provision should reduce in future. Previously, we expanded in lower-tier cities but now we will focus to lend to more clients in the Tier-1 cities.”
More than 90 per cent of the bad loans were related to credit extended to mainland customers including property developers and shopping-centre operators, the bank said. That resulted in a surge in bad-loan ratio from 0.7 per cent to 1.22 per cent. It has since reduced its mainland branches to 98 from 100, it added.