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Bank of East Asia full-year profit rose 11 per cent as mainland China losses narrowed

Chad Bray chadwick.bray@scmp.com
·4 min read

The 102-year-old lender announced last February that it was reorganising its mainland operations after posting its worst annual results in a decade in 2019, driven by higher impairment charges.

The banking group, whose business is primarily focused on Hong Kong and mainland China, reported an annual profit of HK$3.61 billion (US$466 million) for 2020, compared with a profit of HK$3.26 billion in the prior year. The net charge for impairment losses declined significantly from a year earlier and losses in its mainland operations narrowed.

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"We started the year in a strong position, having made the difficult decision in 2019 to write down a series of legacy bad loans. At the same time, we accelerated our commitment to digital transformation, and shifted resources to fee-based services," David Li Kwok-po, the bank's executive chairman, said in a stock exchange filing. "As a result of these timely initiatives, our business performance improved in 2020, despite the low interest rate environment and the disruption caused by the pandemic."

The bank also said it would pay a dividend of 40 HK cents a share for the year.

Shares of BEA declined as much as 4.7 per cent in Hong Kong on Wednesday ahead of the results announcement.

The lender said that its net charge for impairment losses fell sharply to HK$4.67 billion for the year largely because of reductions in losses in its mainland business. That compared with a charge for impairment losses of HK$7.25 billion in the prior year.

The bank's mainland business reported a pre-tax loss of HK$1.05 billion for 2020, compared with a loss of HK$4.76 billion a year earlier. In Hong Kong, pre-tax profit fell to HK$2.51 billion from HK$4.82 billion a year earlier, driven by a 23.5 per cent decrease in net interest income, partially offset by fee income.

Separately, Goldman Sachs Asset Management said on Wednesday that it reached an agreement with BEA to distribute Goldman's investment funds to retail customers in the city.

Like many of its banking rivals, BEA is hoping to capitalise on greater collaboration between Hong Kong and other cities in the Greater Bay Area.

In January, the bank named Christine Lo, its head of retail lending, to lead its GBA office. As a whole, the bay area has a total population of 70 million people and a combined economy of US$1.7 trillion, the equivalent to the world's 11th biggest economic entity.

BEA is one of several of the city's lenders reporting their full-year results this week.

HSBC, the biggest of Hong Kong's three currency-issuing lenders, said it would invest US$6 billion in its wealth management and wholesale banking operations in Asia over the next five years and resume paying its dividend as it reported a smaller than expected decline in its fourth-quarter results. Standard Chartered reports its results on Thursday.

BEA's results came after the lender said in September it would seek to sell its life insurance business and explore potential partnerships to grow its core business following a months-long strategic review prompted by a long-running shareholder battle with Paul Singer's Elliott Management over the lender's direction.

Bank of East Asia co-CEOs Brian Li Man-bun (left) and Adrian Li Man-kiu. Photo: Handout alt=Bank of East Asia co-CEOs Brian Li Man-bun (left) and Adrian Li Man-kiu. Photo: Handout

On Wednesday, BEA said net insurance profit declined by 6.3 per cent for the year, as revaluation gains in the debt and equity portfolios of its insurance subsidiaries did not reach highs recorded in 2019 and additional policy reserves were required in light of the historically low interest rate environment.

The lender previously said the sale of BEA Life would enhance the value of its business, improve the lender's financial position and enable management to focus on its core banking operations in Hong Kong and mainland China.

BEA put the five-year legal battle with US hedge fund Elliott on hold last March after it agreed to the strategic review. Elliott supported the review and agreed to stay its legal action at the time.

In January, Elliott Management moved to close its Hong Kong office after more than 15 years in the city and shift its remaining staff to Tokyo and London. The hedge fund had been winding down its operations in the city for several years and stopped investment activities in Hong Kong at the beginning of the year, according to people familiar with the matter, who were not authorised to discuss the matter publicly.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.