Fuelled by the continuing economic recovery, retail banks by and large recorded profit growth in the first half of 2004, with their pre-tax operating profits in respect of their Hong Kong offices up 25.7% on the first half of last year.

In its quarterly bulletin released today, the Monetary Authority said the main factor for the growth was a sharp reduction in provisions.

Other factors included gains from treasury operations and increased income from fees and commissions arising mainly from wealth management and trade financing.

It said a continued rise in non-interest income offset the effects of a fall in net interest income.

As a result, non-interest income rose to 39% of total operating income in the first half of 2004, up from 33% in the same period last year.

Negative equity falls

Helped by the continued recovery in property values, banks' residential mortgage loans in negative equity fell to around 28,200 cases at the end of June with an estimated aggregate value of $48 billion.

The unsecured portion of these loans was around $8 billion, down from $36 billion a year earlier.

With increased collateral values and continued reductions in outstanding balances due to loan repayments, the overall loan-to-value ratio on negative equity loans fell to 121% from 125% at the end of March.

The mortgage delinquency ratio fell to a 5-year low of 0.57% at the end of June from 0.7% at the end of March.

With the rescheduled loan ratio standing at 0.49% at the end of the second quarter, the combined ratio improved to 1.07% from 1.19%.

Lifted by the strong growth in trade financing and increased consumer spending following the revival of consumer confidence, the domestic lending of retail banks rose 2.4% in the second quarter following a 0.3% rise in the first.

Together with the 10.2% rise in offshore loans, retail banks' total loans grew 2.7% after riseng 0.6% in the first quarter.