* Net profit for Q2 hits $7.21 billion - Reuters calculation
* NPL ratio up slightly to 1.02 pct
* Bank tests new rules on capital adequacy
(Recasts, adds company comment on rising bad loans, details)
By Lawrence White and Engen Tham
HONG KONG/SHANGHAI, Aug 19 Bank of China Ltd
(BoC) reported slowing profit growth and
said it could see more loans go bad in the second half of the
year as export-focused regions suffer.
BoC on Tuesday posted an 8.3 percent rise in its
second-quarter net profit compared with the same period last
year, to 44.3 billion yuan ($7.21 billion), according to a
Reuters calculation from company figures.
That was in line with analysts' expectations, but continued
the trend of slowing profit growth for Chinese lenders as the
costs of dealing with worsening asset quality increase.
BoC, the country's fourth-largest lender by market value,
had posted growth of 17 percent in the second quarter of 2013.
The bank's non-performing loan ratio increased slightly to
1.02 percent at end-June compared with 0.98 percent at
end-March, pushing it above the 1 percent maximum level that the
Chinese banking regulator has said is healthy.
A slowing economy has raised investor concerns about bad
loans in the banking sector.
"Credit assets will face great pressure in the second half
of the year," said Zhang Jinliang, vice president of BoC, at a
media conference in Beijing on Tuesday.
In the first half of the year, 27 billion yuan was spent on
dealing with non performing assets, Zhang said.
The bank's new bad loans are concentrated in manufacturing,
wholesale businesses, and the steel industry, Zhang said, and
are largely in export-orientated areas, such as Zhejiang,
Shandong, and Guangdong provinces.
In response to rising bad loans, banks have cut off lending
to riskier borrowers, tightened lending terms and, in one case,
deployed teams of investigators to assess the risk of loan
Chinese lenders have also accelerated writing off bad
assets, clearing away soured loans that had in the past lingered
on their books.
BoC disposed of 7 billion yuan of bad assets in the first
half of the year, Zhang said, without elaborating on the
"In the second half, the bank will continue to seek
market-orientated ways to dispose of bad assets and increase its
recovery rate," he said.
Bank of China is testing new rules for calculating its
capital adequacy, under which its ratio dipped slightly from
12.46 percent at end-December to 12.41 percent at end-June.
Under the old method, however, BoC said its capital level would
have fallen to 11.78 percent.
Regulators' tough implementation of the new Basel global
capital rules is pushing Chinese banks to raise record levels of
funding to bolster their capital levels.
Lenders in the country are poised to raise a record $120
billion in the next two years to shore up their balance sheets
in the face of slowing growth and rising bad debts.
Bank of China earlier this month said it had won regulatory
approval to issue preferred shares of up to 60 billion yuan
($9.75 billion) in the domestic market and up to $6.5 billion
overseas, part of a broader plan by China's top lenders to meet
Net interest margins were 2.27 percent at the end of the
second quarter, hardly changed from the 2.29 percent at the end
of the first quarter.
($1 = 6.1408 Chinese yuan)
(Additional reporting by Xie Heng in BEIJING; Editing by Miral
Fahmy, Matt Driskill and Pravin Char)