Hong Kong-based bank, The Bank of East Asia Limited, has announced plans of reorganizing its business in mainland China. The decision was made by the bank amid growing delinquencies as it attempts to grow its loans in the mainland in lower-tier cities have apparently backfired.
To offset its growing non-performing loans, the bank plans to shift its focus on digital banking. According to the lender's co-chief executive, Brian Li, will also step up its efforts to grow its business in higher-tier cities in the mainland. The announcement was made shortly after the bank reported a slump in its earnings, figures that were the lowest ever reported by the financial institution since the global financial crisis in 2009.
In its latest earnings report published on Wednesday, The Bank of East Asia reported profits of around $420 million for 2019, a 50 percent decline when compared to its profits in the previous year. A bulk of the company's losses were attributed to its business in mainland China, where it lost around HK$3.55 billion.
The bank reported a five-fold surge in provision for bad loans in mainland China, totaling over HK$7.25 billion. It's business in Hong Kong remained positive for 2019 despite the civil unrest and political the crisis that gripped the city last year. Its Hong Kong business generated profits of HK$5.795 billion last year, a 16.5 percent increase when compared to its profits in 2018.
Co-chief executive Brian Li Man-Bun stated during a teleconference with shareholders that they believe that the worst is already over and that the bank should now be on the road to further growth. Li stated that they expected provision to be lower in the coming quarter given that they have now shifted their focus to giving out more loans to residents of higher-tier cities in the mainland.
According to the bank, over 90 percent of the bad loans they had incurred last year were related to credit given to mainland customers, particular shopping center operators and property developers. The increase in loans to customers in lower-tiered cities resulted in a surge of its bad-loan ratio from 0.7 percent to 1.22 percent.
The bank's performance last year was highly anticipated by stakeholders given the recent management change. Brothers Brian Li and Adrian Li Man-Kiu took over the top positions within the company back in July last year. The two co-executives took the reins at a very uncertain time for the company given the civil unrest. The brothers took over the company from their father, 81-year-old David Li Kwok-Po, who stepped down from his position.
