BEA Reports Year 2002 Profits of HK$1.3 Billion

Hong Kong, 11 February 2003 – The Bank of East Asia Group and its subsidiaries (the “BEA Group”) today announced a consolidated profit attributable to shareholders of HK$1,288 million for the year ended 31 December 2002, a decline of 19.5 per cent over that of HK$1,600 million for 2001. Basic earnings per share and cash earnings per share fell to HK$0.89 and HK$0.99, respectively, compared with the corresponding figures of HK$1.12 and HK$1.19 per share the previous year.

The Board of Directors recommended a final dividend of HK$0.35 per share, compared with HK$0.33 per share declared for 2001. Coupled with the interim dividend of HK$0.21 per share, this brings the total dividend to HK$0.56 per share for 2002, or an increase of 3.7 per cent over that of HK$0.54 per share for 2001.

Despite the difficult operating environment during 2002, the BEA Group recorded an encouraging growth in operating profit before provisions, reaching HK$2,521 million, a rise of 7.2 per cent. Of the total operating income, non-interest income grew robustly by 28.2 per cent to HK$1,582 million. This is mainly attributable to the growth in fee-based income, and reflects the contribution from acquisitions made in recent years. Total operating income for 2002 amounted to HK$5,408 million, a rise of 3.8 per cent on the HK$5,212 million recorded in 2001.

Operating expenses rose to HK$2,887 million, a slight increase of 0.9 per cent over the previous year. This slight rise includes the operating expenses of new acquisitions, excluding which total operating expenses would have shown a fall of 3.0 per cent. In 2002, the net interest margin narrowed to 2.22 per cent from 2.32 per cent the previous year.

As of 31 December 2002, the ratio of non-performing loans to total advances to customers stood at 2.9 per cent, compared with 3.1 per cent as of the same date in 2001. The charge for bad and doubtful debts, however, increased substantially to HK$811 million from HK$432 million the previous year.

The rise in bad debt charges was mainly due to two factors. One factor was the deterioration in the quality of the Bank’s credit card and consumer loan portfolio, resulting from the sharp rise in personal bankruptcies recorded in 2002. The second factor was the need to mark-to-market the value of all properties either repossessed or with mortgage payments overdue for three months or more.

The BEA Group’s total consolidated assets at the end of 2002 amounted to HK$185 billion, 1.9 per cent up from HK$182 billion the previous year. Total deposits reached HK$152 billion, an increase of 1.5 per cent. As of 31 December 2002, total capital resources grew by 2.9 per cent to HK$23 billion.

At BEA, the capital adequacy ratio was maintained at 17.0 per cent at 2002 year-end, while the average liquidity ratio for the year stood at 46.1 per cent. The loan-to-deposit ratio was 71.3 per cent at 31 December 2002, compared to 72.3 per cent on the same date in 2001.

Dr. David K. P. Li, Chairman and Chief Executive of the BEA Group, said the Bank has achieved the encouraging growth in operating income during 2002 due largely to the success of the Bank’s diversification strategy put in place three years ago. “Through acquisition and internal re-organisation, we have raised the share of non-interest income to 29.3 per cent of the total operating income, from 23.7 per cent in 2001,” he said. The Bank aims to raise this ratio further to 35 to 40 per cent of revenue In the medium term.

BEA’s performance for 2002 was adversely affected by the weakened economy, and the sharp rise in personal bankruptcies. As a result, the asset quality of the Bank’s credit card and consumer lending business was severely hit. In response to this, the Bank has tightened the credit policies. Dr. Li said: “We believe the worst is behind us. The recent decision by the Privacy Commissioner to allow greater sharing of credit data should help us lower the rate of loan defaults,” Dr. Li said.

Elaborating on the Bank’s business strategy, Dr. Li said the BEA Group’s revenue sources was now spread more widely. In particular, he highlighted the major acquisitions in the past two years in corporate services. “We have built Tricor into Hong Kong’s largest corporate services firm. Earlier this year, we extended our leading position by acquiring the corporate services business of PricewaterhouseCoopers. All these acquisitions have now been consolidated within Tricor under one roof,” Dr. Li said.

In addition to the Tricor acquisitions, BEA has strengthened its participation in the insurance business through Blue Cross (Asia-Pacific) Insurance Ltd (“Blue Cross”), a fully-owned subsidiary. During the year, Blue Cross has developed new insurance products for sale online and through BEA branches. In 2002, Blue Cross recorded a notable growth of 28 per cent in premium income, to HK$604 million.

BEA has stepped up its efforts to extend the range of premium services it offers to its customers. In December 2002, the Bank rolled out SupremeGold, bringing one-stop personalised banking and investment services to the broad mass of the affluent middle class,. The Bank opened its first SupremeGold Centre at Tsim Sha Tsui Branch in January 2003, and is expected to have10 such centres in place by year-end.

BEA saw its China operations grow to a new record in 2002. The China businesses contributed 12.3 per cent for the BEA Group’s profit before tax.

Following the relaxation of banking regulations governing foreign currency business in China, BEA has set up SupremeGold Centres at all the Mainland branches, to tap the growing demand by affluent individuals in China. This complements the new service concurrently launched in Hong Kong.

To better serve its customers, BEA has opened a new sub-branch in Guangzhou, raising the number of the Bank’s outlets in China to 16. The Bank is now applying to open additional sub-branches in major coastal cities currently served by BEA. In the meantime, BEA has met all preparatory requirements to upgrade its Beijing Representative Office to a full branch, and a soft opening of the branch is planned for the first quarter of this year.

BEA’s overseas operations achieved a remarkable growth of 32 per cent in loan business during 2002, and a 13 per cent rise in after tax profits. In the coming years, the Bank will invest additional resources in developing its overseas business.

Dr. Li concluded: “With our unique position in the China market, and the synergy of our corporate services and insurance businesses with our main banking business, we will continue to build for the future and enhance our franchise in Hong Kong, China and international markets.”

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