Fubon Bank (Hong Kong) reported net profit fell 77 per cent last year as earnings were dragged down by an increase in bad debt among small and medium-sized enterprises and provisions for Lehman Brothers minibond holders.

Net profit plunged to HK$23 million from HK$100.9 million in 2008. Despite the falling profit, the lender will continue to pay a final dividend of 1.5 HK cents per share, the same as last year.

Fubon managing director and chief executive Thomas Liang Pei-hwa said in the results announcement that the lender reported growth in net interest income and fee-based revenues in the fourth quarter of last year. Net interest income grew 15.5 per cent annually to HK$1.14 billion.

These gains were offset by higher levels of bad debt on SME loans and provisions made for the Lehman minibond repurchase scheme.

Fubon, a unit of Taiwan financial conglomerate Fubon Financial Holding, was among 16 local banks to make a deal with regulators in July last year to pay a combined HK$6.3 billion to disgruntled investors involved in the Lehman minibond scandal.

More than 20,000 investors complained they were misled by banks or brokers about the risks inherent in the minibonds issued or guaranteed by Lehman. Despite its name, the minibond was not a corporate bond but rather a risky credit-linked note.

Fubon said its provision for the sale of structured investment products, including charges for the Lehman minibonds, was about HK$100 million. Total provisions made in 2009 and 2008 amounted to about HK$140 million. In an earlier statement, the bank estimated it needed to pay HK$321 million to customers if all those eligible accepted the offer.

Including the minibond repurchase cost, total operating expenses decreased 1 per cent to HK$954 million. The minibond fiasco dented customer confidence in such products. The bank reported a 53 per cent year-on-year decline as commission income from the sales of structured products dived.

The economic downturn also has led to a sharp increase in bad-debt impairment losses from advances made to customers to HK$484.92 million from HK$309.3 million a year earlier. These were mainly related to losses on loans made to SMEs.

Looking ahead, Liang said economic growth in Hong Kong and on the mainland would benefit the banking sector as a whole. "In 2010, the bank will adopt a growth-yet-prudent strategy to capture market potential while minimising risks and costs," he said.

10 Mar 2010