MANILA, Philippines--Retail tycoon Henry Sy's China Banking Corp. posted a 10.74-percent drop in first-semester net profit compared to a year ago as trading gains slacked while its branch expansion and consolidation with Manila Bank jacked up expenses.

China Bank disclosed on Friday that its net profit fell to P1.46 billion during the January-to-June period from P1.63 billion booked in the same semester last year.

"Market conditions proved to be unusually tough for the entire banking industry during the first semester as the fallout from the subprime housing crisis in the US was felt globally. Nevertheless, we are pleased to note that China Bank fared relatively well under the circumstances, considering that we are still in expansion mode," China Bank president and CEO Peter Dee said in a statement.

China Bank's total revenues went up 8.46 percent to P7.02 billion for the period, but like most of its banking peers, net income was weighed down by the slump in securities-related revenues.

Net earnings were also eroded by higher operating expenses arising from the implementation of its three-year branch expansion plan and the integration of Manila Bank, which brought its network size to 200 branches. Operating expenses rose 14.99 percent to P2.47 billion from a year ago.

But the 88-year-old bank managed to post a return on equity of 11.05 percent and a return on assets of 1.59 percent, still among the highest in the industry.

Interest revenues from loans expanded 16.46 percent year-on-year as the bank grew its loan portfolio while interest income from investment securities and other receivables declined 14.2 percent due to lower yields.

Other fee-based revenues showed a 42.73-percent growth despite the lower trading gains, boosted by improvements in foreign exchange gains, trust fees, sale of acquired assets as well as service charges, fees and commissions.

China Bank saw a 12.9-percent year-on-year growth in gross loans, fueled by the 32.5-percent rise in consumer lending. In terms of asset quality, the bank's non-performing loan ratio stood at 5.7 percent.

The bank said it had taken a prudent stance by beefing up its provisions for losses from P82.73 million to P208.18 million, bringing its loan-loss coverage ratio to 94.32 percent.

As of June 2008, total consolidated resources stood at P190.1 billion, 8.21-percent more than the end-December level. Of this, net loan portfolio accounted for P92.3 billion.