Bank of East Asia 2H14 profit down 6% y/y at HK$3,081m

Its China business is also deteriorating.

Bank of East Asia reported FY14 net profit of HK$6,661mn, up 0.7% y/y, and 2H14 profit of HK$3,081m, down 14% h/h and down 6% y/y, below Barclays' expectations by 5%.

According to a research note from Barclays, excluding investment and property valuation gains, 2H14 underlying profit was 11% below expectations.

The report noted that it was mainly due to higher-than-expected credit costs which more than doubled h/h to 31bp in 2H (1H: 15bp) led by asset quality deterioration in China. Net interest income and fee income were also below expectations.

Here's more from Barclays:

BEA China’s performance was disappointing in the slowing macro environment: Asset quality deteriorated sharply in China, NPL ratio rose sharply to 1.32% (1H: 0.74%).

China loan growth slowed to 3% h/h (1H: 9%) as the bank is now more cautious with onshore lending and is shifting its focus to cross-border services. Group margin declined by 4bp h/h to 1.75%, reflecting a 4bp decline in China’s margin to 2.18%.

BEA expects margin to remain under pressure due to asymmetrical interest rate cuts and higher upper limit of the deposit rate cap. China’s deposits also contracted by 5% h/h, likely due to fierce deposit competition, resulting in the loan-to-deposit ratio rising to 72.6% (1H: 68.3%).