China Construction Bank Profit Drops on Loan Margins (Update2)
By Kelvin Wong and Sophie Leung
Aug. 21 (Bloomberg) -- China Construction Bank Corp., the nation’s second-biggest lender by market value, said
first-half profit fell 4.9 percent on contracting loan margins.
Net income declined to 55.8 billion yuan ($8.2 billion), or 0.24 yuan a share, from 58.7 billion yuan, or 0.25 yuan a share, a year earlier, the Beijing-based bank said in a statement to Hong Kong’s stock exchange today. The profit beat the 52.9 billion yuan median estimate of seven analysts surveyed by Bloomberg News.
Construction Bank, battling lower lending margins and concerned about the risk of rising defaults,
plans to make fewer loans in the second half. Chinese banks handed out a record $1.1 trillion of new loans in the first half to support the 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 and Daisy Wu wrote in an Aug. 13 report.
Construction Bank’s Hong Kong-listed shares have risen 37 percent this year, compared with the 40 percent gain in the local benchmark Hang Seng Index. The stock fell 0.9 percent to HK$5.84 today.
Net interest income, or revenue from borrowers minus interest paid to depositors, dropped 7.8 percent to 102.5 billion yuan from 111.1 billion yuan. Net interest margin, a measure of loan profitability, narrowed to 2.46 percent from 3.29 percent a year earlier, Construction Bank said.
Monitor Lending
“The rapid growth of lending may lead to greater pressure on controlling†non-performing loans, the lender said in the filing today. “The group will monitor the size and pace of lending, sticking to its credit differentiation policy.â€
Construction Bank extended 708.5 billion yuan of new loans in the first half and plans to reduce that by 70 percent to about 200 billion yuan in the second half to avoid a surge in bad debt, President Zhang Jianguo said in an Aug. 7 interview.
“We fundamentally welcome Construction Bank taking the lead in gradually slowing down sector loan growth,†Goldman Sachs Group Inc. analysts including Ning Ma and Roy Ramos wrote in an Aug. 7 report.
“They have been more disciplined in growing loans than other banks.†Construction Bank’s
net fees and commissions from services such 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 provisions against bad debts during the first half, down 7.8 percent from a year earlier.
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