By staff reporter Wang Zhen

 The Bank of Beijing posted a resoundingly positive financial report for the first half of 2008. While all the numbers seem to indicate exceptional success for the bank, they do not exceed analysts’ expectations.

 
The bank reported 121.48 percent year-on-year net profit growth, 2.9 billion yuan in profits, and total assets topping 363.4 billion yuan. Non-performing loans (NPLs) fell to 1.74 percent, while the exposure for NPL provisions grew to 141 percent, up 21 percent from the beginning of the year.

Analysts from Sinolink Securities highlighted two aspects in the Bank of Beijing’s recent report: the gap between loans and deposit interest increased, leading to net interest income growth of 78.24 percent year-on-year; assets quality also improved despite a second-quarter provisions for NPLs that cut into first-half performance by as much as 20.25 percent.

“The bank’s solid financial performance in the first half year is the result of increasing the provisions set aside for anticipated losses,” said analyst Lv Xiaojiu of Bank of Communications International Trust.

Bank of Beijing’s assets quality has improved because their real estate holdings have shrunk, while their holdings in low-risk sectors grew to comprise a relatively large portion of the bank’s portfolio, according to Sinolink. Real estate investments fell from 14.26 percent at the beginning of the year to below 12 percent as of June 30. In contrast, holdings in public facilities and infrastructure increased to 22.87 percent of their loan portfolio.

Bank of Beijing reported 19.14-percent capital adequacy as of June 30. Lv does not see the bank’s performance as outstanding among its peers. “City commercial banks are all newly listed. It is natural that they have adequate cash flow,” he said.

The bank’s fee income grew 93 percent year-on-year, totaling 249 million yuan in 2008’s first half. But Lv said this also is not uncommon. “Growth at 100 percent and more is quite normal for city commercial banks as their base is low.”

The Bank of Beijing has its unique advantage in expanding outside of Beijing, noted Lv. “Normally Chinese banks rely on deposits and then loans but as a capital-based bank, Bank of Beijing can swiftly expand its assets business while building a client base, and then work on liabilities businesses,” he said.

In the first half, the bank’s branch in Xi’an lent 2.25 billion yuan, the Shanghai branch lent 8.76 billion yuan, and the Tianjin branch, the bank’s first regional branch outside of Beijing, granted 10 billion yuan in loans.

Bank of Beijing has obtained an approval from regulators to open a representative office in Hong Kong. It will also open a branch in southern China’s Shenzhen and in the eastern city of Hangzhou.

The bank listed on Shanghai Stock Exchange in September 2007 at 12.5 yuan per share. The stock quickly climbed to 25.15 yuan per share on October 15, but fell continuously from there. As of 3pm August 26, Bank of Beijing closed at 9.49, down 1.86 percent from last trading day. “The decline of the stock is part of the A share trend, in which the bank itself does not decide too much,” said Lv. On the same day, the Shanghai Composite Index declined 2.69 percent to close at 2350.

Gao Yuan, an analyst with Anxin Securities, said that from now until 2010, Bank of Beijing should focus its energies on risk control rather than growth, since the latter is already looking good. “The bank has ambitions to expand nationwide, and its first three regional banks outside of Beijing have grown fast. With strong support from its Beijing headquarters, the bank should be able to grow relatively quickly in the next three years.”

Gao noted that it is critical that the bank pays attention to risk control. “In the short to medium term, the bank will realize risk control through its client portfolio. Regional branches will depend on high-end wholesale loans, among which infrastructure and treasury projects will take the majority, with corporate making up the rest.”

The Dutch bank ING holds a 16-percent stake in the Bank of Beijing, making it the biggest independent shareholder and strategic investor. International Financial Corporation holds 4 percent. The rest of the non-tradable shares are owned by several state-owned companies that include the Beijing State Assets Management Co., Ltd. Together, these state-owned companies own 28 percent of the total shares.