Bank of China, the Asian partner of Royal Bank of Scotland, yesterday posted a 40% rise in nine-month profits amid a booming mainland economy, but it also booked a $322m (£156m) provision to account for its exposure to debt obligations supported by the crisis-plagued US sub-prime mortgage market.
Positive results from China's second-biggest lender by market value in the past have boosted Royal Bank shares, but yesterday the Scottish group's stock shed 1.1% to 506p, likely rattled by the sub-prime aspect of the announcement.
The share price of China's second-biggest lender by market value has lagged that of its peers after it reported in August that it held almost $9.7bn worth of bonds backed by US sub-prime loans, the largest of any Asian company, which has spooked investors.
Concern about the troubled US sub-prime market and the difficult credit environment in general have set off roller-coaster fluctuations on global markets in recent months.
Nonetheless, Bank of China's Hong Kong shares have risen about 18% since it reported its exposure to the crumbling sub-prime mortgage market.
At the same time, Hong Kong-listed shares in rivals Industrial and Commercial Bank and China Construction Bank, which both reported smaller sub-prime exposure in August, have risen more than 40% over the same period.
Meanwhile, Beijing-based Bank of China said its nine-month net profit totalled 45.5 billion yuan (£2.9bn) based on international accounting standards, compared with 32.5 billion yuan a year earlier.
The Chinese bank's results once again vindicated Royal Bank's decision to take its stake in the bank in 2005.
Edinburgh-based Royal Bank withstood opposition from its own investors when it first emerged that it was planning to invest in Bank of China.
Royal Bank originally paid around £1.6bn of its own cash for a holding in Bank of China of just more than 5% - but it has since reduced that stake to 4.26%.
Meanwhile, Bank of China said that the aggregate amount of its sub-prime allowances stood at $473m at the end of September.
The lender also said the carrying value of its investment in sub-prime asset-backed securities was about $7.5bn, representing around 2% of its total investment securities.
Beijing has imposed tightening measures to rein in its red-hot economy, including raising reserve ratio requirements for banks, but the country's lenders are nonetheless expected to see continued profit growth on widening interest margins.
Last week, the Chinese Government said the economy grew by 11.5% in the third quarter from a year earlier.
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