China Construction Bank Corp, the world’s second-largest lender by market value, said first-half profit jumped 31 percent to a record as credit demand climbed.
Net income rose to 92.8 billion yuan ($14.5 billion), or 0.37 yuan a share, from 70.7 billion yuan, or 0.3 yuan, a year earlier, the Beijing-based lender said in a statement to the Shanghai stock exchange yesterday. Profit was in line with the 91.5 billion yuan median estimate of eight analysts surveyed by Bloomberg News.
Construction Bank joined rival Bank of Communications Co. in reporting record first-half profit as loan demand climbed in the world’s second-largest economy. Lending profitability also improved after China raised interest rates three times this year. Still, the lender’s Hong Kong-listed shares lost about a quarter of their value this year on concern defaults may climb.
“Looking forward, investors are concerned about Chinese banks’ earnings sustainability and asset quality,” said Stanley Li, an analyst at Mirae Asset Securities (HK) Ltd. in Hong Kong, said today by phone. “Fee income might be affected by the tougher regulations proposed on the sale of wealth management products. The market is also concerned about what level the credit quality may deteriorate to.”
China’s banking regulator has asked lenders to increase capital buffers and accelerate loan collection schedules for local government debt amid mounting concern that a record $2.7 trillion two-year credit boom started in 2009 will result in soaring defaults if the economy falters. China is also tightening oversight of wealth-management services, banning practices such as banks buying each other’s products to bypass limits on deposit rates and loan quotas.
Default Concerns
Shares of Construction Bank dropped almost 1 percent to HK$5.22 as of 10:31 a.m. local time, compared with a 0.9 percent gain in the benchmark Hang Seng Index. (HSI) The stock has declined 25 percent this year.
Construction Bank’s non-performing loan ratio narrowed to 1.03 percent from 1.14 percent at the beginning of the year, while the provision coverage ratio increased to 244.68 percent of non-performing loans from 221.14 percent.
Net interest income, or revenue from lending minus payments to depositors, climbed 24 percent to 145.7 billion yuan while net fee and commission income increased 42 percent to 47.7 billion yuan. Net interest margin, a measure of lending profitability, widened to 2.66 percent from 2.41 percent a year ago.
Shareholders of the state-controlled lender, established in 1954 to fund roads, bridges, dams and other public works, approved a plan to raise as much as 80 billion yuan from the sale of yuan-denominated subordinated notes by the end of August 2013 to replenish capital, the bank said Aug. 18.