UPDATE 2-Bank of East Asia warns of protest impact on HK SMEs as H1 profit dives

(Recasts, updates with details and quotes)

HONG KONG, Aug 21 (Reuters) - Further protests in Hong Kong could hit the city’s economy, especially the small and medium enterprises (SMEs), Bank of East Asia warned on Wednesday, after reporting a 75% plunge in its first-half net profit due to loan writedowns in mainland China.

Some Hong Kong companies have been dragged into political controversy in Hong Kong after 11 weeks of sometimes violent clashes between police and pro-democracy protesters, angered by a perceived erosion of freedom.

Anger erupted in June over a now-suspended bill that would allow criminal suspects in the former British colony to be extradited to mainland China for trial.

Bank of East Asia (BEA), and its rivals, have closed branches in the vicinity of protests on a number of separate occasions in past weeks.

“The recent situation in Hong Kong has caused signs of concerns for local SMEs. If the current condition continues it shall affect tourism, retail trade as well as investor confidence,” Adrian Li, co-chief executive, Bank of East Asia, said at a press conference in Hong Kong on Wednesday.

BEA’s Hong Kong asset quality remains healthy, Li said, adding that he thought long-standing prudential measures from the territory’s central bank meant that the overall situation was manageable.

The lender, which counts Hong Kong and China as its key markets, posted a net profit of HK$1 billion ($127.50 million) for Jan-June, compared with HK$3.99 billion a year earlier, the company said in a statement to the Hong Kong Stock Exchange.

The bank’s impaired loan ratio for its mainland China operations rose to 4.89% from 1.73% at the end of 2018, and its net charge on impairment losses climbed to HK$5.01 billion from HK$282 million in the first six months of last year.

This was largely because the bank downgraded four loans in mainland China worth HK$6.2 billion, which it attributed to a downturn in commercial property markets outside China’s top cities.

Brian Li, the bank’s co-chief executive responsible for its China business, said as they do not expect the same level of provisions for bad loans in the second half of the year, the group’s performance should improve.

Adrian and Brian Li took up their roles as co-chief executives in July, succeeding their father, David Li, who remains the bank’s executive chairman.

BEA was founded by a group of Hong Kong businessmen including David Li’s grandfather, in 1918, and has survived as an independent lender in a market that is dominated by HSBC Holdings, Bank of China (Hong Kong) and Standard Chartered.

$1 = 7.8432 Hong Kong dollars Reporting by Alun John and Felix Tam; Editing by Muralikumar Anantharaman and Sherry Jacob-Phillips