Bank of China (HKG:3988)

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Sean Mahoney

Bank of China Limited (BOC) (SSE:601988, SEHK:3988) is one of the "Big Four" state-owned commercial banks (SOCBs) in China. Though heavily state-owned, the Bank of China should not be confused with the People's Bank of China, the country's central bank.

BOC is China's most international and diversified bank, offering financial services to clients in the Chinese mainland, Hong Kong, Macau, and 29 other countries. Through numerous subsidiaries, Bank of China offers a full range of financial services including commercial and investment banking, insurance, fund management and investment management.

While competitors were left reeling from the financial crisis of 2008, BOC was relatively unaffected, with operating profits falling only 3.3% in 2008 from a year earlier.^[1] Operating profits rebounded sharply in 2009, up 27.94% as Bank of China's performance was buoyed by booming economic growth in the PRC (8.7%) and fiscal stimulus from Beijing.^[2] Encouraged by the central government to inject capital into the economy, lending across the banking industry in China measured RMB9.6 trillion in 2009, up from RMB4.9 trillion in 2008.^[3] Officially in 2009, the Nonperforming Loans (NPLs) of domestic commercial banks totalled RMB497.33 billion, a decrease of RMB62.98 billion compared with the prior year-end figure.^[4] The official NPL ratio was 1.58%, down by 0.84 percentage point compared with the prior year-end.^[5] Allowances for loan impairment losses to NPLs reached 155.02%, a significant increase of 38.57 percentage points from the prior year's end.^[6] In 2010, the central government reversed course, establishing a ceiling on bank lending of RMB7.5 trillion.^[7] Compounding the fears of an overheating economy is evidence that the official govenrment statistics understate both the amount of loans and the percentage of loans that are non-performing, suggesting that the Chinese financial system is not as stable as many believe.^[8][9]

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References

1. ↑ Bank of China 2009 Annual Report, p.2
2. ↑ Bank of China 2009 Annual Report, pp.2,16
3. ↑ Bank of China 2009 Annual Report, p.17
4. ↑ Bank of China 2009 Annual Report, p.17
5. ↑ Bank of China 2009 Annual Report, p.17
6. ↑ Bank of China 2009 Annual Report, p.17
7. ↑ "China Stocks Drop Most in Three Weeks Amid Bank Loan Restriction Concerns." Bloomberg News 09/16/2010
8. ↑ "China Special Report: Informal Securitisation Increasingly Distorting Credit Data," Fitch Ratings July 14, 2010
9. ↑ Barboza, David. "Report Warns of Risks to China’s Bank System." The New York Times. July 14, 2010