China Construction Bank Corp., the world’s second-largest lender by market value, said profit rose 26.3 percent to a record last year on higher loan demand and interest margins.
Net income climbed to 134.8 billion yuan ($20.6 billion), or 0.56 yuan a share, from 106.8 billion yuan, or 0.45 yuan a share a year earlier, the Beijing-based bank said in a statement to the Hong Kong stock exchange. That was less than the 139 billion yuan average of 17 estimates compiled by Bloomberg News.
Construction Bank joined Bank of China Ltd. in reporting record annual earnings for a fourth year as demand for consumer and corporate loans climbed in an economy that overtook Japan to become the world’s second largest. The earnings increase may ease investors’ concerns about asset quality deteriorating as policy makers tighten rules.
“Strong demand for loans and rising pricing power are still the dominant factors driving banks’ profit growth,” Wu Xiaoling, a Shenzhen-based analyst at Great Wall Securities Co., said. “A rebound in bad loans is a valid and long-term concern, but that’s not likely to depress earnings anytime soon.”
Construction Bank’s net income rose 18 percent to 24.35 billion yuan in the fourth quarter, based on subtracting nine- month profit from full-year earnings.
The Hong Kong-listed shares gained 1.95 percent to HK$7.32 on March 25, and have risen 3.54 percent this year, compared with a 1.18 percent drop in the benchmark Hang Seng Index. Its Shanghai-listed shares have advanced 9.8 percent this year.
The value of loans outstanding at the state-controlled lender stood at 5.53 trillion yuan at the end of December, an increase of 17.8 percent from the beginning of the year, according to yesterday’s statement. That’s slower than 2009’s expansion of 27 percent. The bank said it expects yuan-denominated credit to grow 13 percent this year.
The lender sees “excellent opportunities for nurturing new businesses” this year and “accelerated liberalization of interest rates and exchange rates will also give the group greater freedom for financial innovation,” the statement said.
Still, tightening liquidity and volatile capital markets is making business more difficult and regulatory constraints and competition in the banking industry will require the company to improve its management, the statement said.
Net interest income, or revenue from borrowers minus interest paid to depositors, gained 18.7 percent to 251.5 billion yuan last year as the net interest margin widened to 2.49 percent from 2.41 percent the previous year. Income from fee-based services jumped 37.6 percent to 66.1 billion yuan.
Construction Bank, part-owned by Bank of America Corp., set aside 29.3 billion yuan in provisions against bad debts in 2010, compared with 25.5 billion yuan a year earlier, according to its earnings statement.
Non-performing loans rose by 2.1 billion yuan from September to 64.7 billion yuan as of Dec. 31, accounting for 1.14 percent of total advances, after the government stepped up tightening measures to cool asset bubbles and fight inflation.
Construction Bank, established in 1954 to fund roads, bridges, dams and other public works, has a higher proportion of property-related loans than most of its biggest rivals, the companies’ financial statements show.
The bank said yesterday that its loans to the real-estate industry climbed 12.3 percent last year, slower than the 18.7 percent growth in overall corporate loans, and accounted for 7.1 percent of total lending at the end of 2010.
China in January increased the minimum down payment for second-home purchases, told local governments to set price targets on new properties and introduced taxes for homes in Shanghai and Chongqing. The central bank has raised interest rates three times since October.
The country’s real estate market has defied the restrictions, with the average price of homes rising 26 percent in the first two months of this year, according to China’s statistics bureau.
Construction Bank’s capital adequacy ratio rose to 12.68 percent as of Dec. 31 from 11.64 percent three months earlier after it completed a $9.2 billion rights offer in December.
China’s regulator required banks, which have lent at least $1.2 trillion to local governments’ financing vehicles, to recalculate their capital levels by March 31 to account for higher risk weightings on such loans, people familiar with the matter said last month. That may cut capital ratios at China’s five largest banks to near the regulatory minimum, they said.
Construction Bank will improve its risk controls over key areas of lending including to government financing vehicles, property and industries with excess capacity, it said.
© Copyright 2017 Bloomberg News. All rights reserved.