Flagging economy slams Bank of China

Bank of China Ltd reported a net profit of US$5.5 billion, a 5.3% improvement year-on-year from US$5.2 billion.

It was slowest quarterly profit growth in three years for China’s third-largest bank by assets and reflects on the deteriorating growth besetting China’s economy that slowed loan demand and squeezed interest rate margins.

BOC earned US$11 billion in the first half, an increase of 7.6% from a year earlier. It improved its first-half earnings by reducing its provisions for bad debt as the first cut in benchmark interest rates since 2008 reduced the profitability of lending operations.

China’s biggest banks are trading at close to record-low valuations in Hong Kong on concern bad loans will increase as the economy stumbles forward. Analysts believe net interest margins will definitely narrow in the second half.

The bank’s non-performing loans (those overdue for at least three months) rose to US$10 billion in June from US$9.9 billion at the beginning of the year.

Special-mention loans or those at risk of defaulting fell US$81million to US$30 billion.

Analysts expect China’s 16 publicly traded lenders to post a 16% increase in net income in the first six months, followed by a 1.5% drop in the second half and then a sustained plunge