China Construction Bank Profit Drops on Loan Margins
Aug. 21 (Bloomberg) -- China Construction Bank Corp., thenation’s second-biggest lender by market value, said first-halfprofit fell 4.9 percent on contracting loan margins.
Net income declined to 55.8 billion yuan ($8.2 billion), or0.24 yuan a share, from 58.7 billion yuan, or 0.25 yuan ashare, a year earlier, the Beijing-based bank said in astatement to Hong Kong’s stock exchange today. The profit beatthe 52.9 billion yuan median estimate of seven analysts surveyedby Bloomberg News.
Construction Bank, battling lower lending margins andconcerned about the risk of rising defaults, plans to make fewerloans in the second half. Chinese banks handed out arecord $1.1 trillion of new loans in the first half to supportthe nation’s $585 billion economic stimulus package.
Margin contraction is “the biggest drag on the top line,”Credit Suisse Group AG’s Hong Kong-based analysts Sherry Lin andDaisy Wu wrote in an Aug. 13 report.
Construction Bank’s Hong Kong-listed shares have risen 37percent this year, compared with the 40 percent gain in thelocal benchmark Hang Seng Index. The stock fell 0.9 percent toHK$5.84 today.
Net interest income, or revenue from borrowers minusinterest paid to depositors, dropped 7.8 percent to 102.5billion yuan from 111.1 billion yuan. Net interest margin, ameasure of loan profitability, narrowed to 2.46 percent from3.29 percent a year earlier, Construction Bank said.
Monitor Lending
“The rapid growth of lending may lead to greater pressureon controlling” non-performing loans, the lender said in thefiling today. “The group will monitor the size and pace oflending, sticking to its credit differentiation policy.”
Construction Bank extended 708.5 billion yuan of new loansin the first half and plans to reduce that by 70 percent toabout 200 billion yuan in the second half to avoid a surge inbad debt, President Zhang Jianguo said in an Aug. 7 interview.
“We fundamentally welcome Construction Bank taking thelead in gradually slowing down sector loan growth,” GoldmanSachs Group Inc. analysts including Ning Ma and Roy Ramos wrotein an Aug. 7 report. “They have been more disciplined ingrowing loans than other banks.”
Construction Bank’s net fees and commissions from servicessuch as credit cards, custodian services and mutual fund sales,rose 16 percent to 23.4 billion yuan from 20.2 billion yuan.
The lender set aside 12.8 billion yuan in provisionsagainst bad debts during the first half, down 7.8 percent from ayear earlier.
Economic Recovery Prospects
The Shanghai Composite Index has retreated 15 percent fromthis year’s high on Aug. 4, after more than doubling fromNovember’s low, on concern the nation’s economic recovery willfalter as the government reins in lending.
China plans to tighten capital requirements for banks, withthe China Banking Regulatory Commission sending draft rulechanges to lenders on Aug. 19 requiring them to deduct allexisting holdings of subordinated and hybrid debt sold by otherlenders from supplementary capital, said three people who haveseen the document.
Banks have until Aug. 25 to give feedback, said the people,declining to be named as the matter is private.
While slowing loans at home, Construction Bank is planningto expand abroad to close a gap with rivals Industrial &Commercial Bank of China Ltd. and Bank of China Ltd., Zhang saidearlier this month.
ICBC, the world’s largest by market value, yesterday postedhigher-than-estimated second-quarter profit on credit growth andlower provisions for bad loans.
BoCom Profit
Bank of Communications Ltd., China’s fourth-largestpublicly traded lender, reported second-quarter profit of 7.62billion yuan on Aug. 19, beating analysts’ estimates asoutstanding loans rose 31 percent.
Revenue from outside mainland China accounted for 1.7percent of Construction Bank’s total in 2008. The bank hasoutlets in New York, London and a representative office inSydney, and is seeking a banking license in Vietnam.
The lender, established in 1954 to fund roads, bridges,dams and other infrastructure, was China’s largest mortgage andreal-estate lender until the first half of last year, when ICBCpushed it to second place.
To contact the reporter on this story:Kelvin Wong in Hong Kong at kwong40@bloomberg.net;Sophie Leung in Hong Kong at sleung59@bloomberg.net
Last Updated: August 21, 2009 08:20 EDTSource: Bloomberg
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