China Construction Bank Corp. (939), the world’s second-largest lender by market value, posted a 24 percent increase in fourth-quarter profit after higher lending and fee income outweighed provisions set aside for bad debt.
Net income climbed to 30.2 billion yuan ($4.8 billion) in the quarter, from 24.4 billion yuan, according to calculations based on full-year figures published by the Beijing-based lender yesterday. That compared with the 31.4 billion-yuan average estimate of 22 analysts in a Bloomberg survey.
Construction Bank joins smaller rival China Minsheng Banking Corp. in posting higher earnings after a credit shortage drove up interest rates, boosting loan profitability. Still, curbs on borrowing by local governments, property developers and homebuyers are triggering bad debts as the lender has more assets at risk from these clients than most of its peers.
“We forecast earnings growth will slow from the very robust 25 percent in 2011 to 10 percent in 2012 as credit costs rise, loan growth decelerates and net interest margins contract in the second half,” Mike Werner, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said in a research report today.
Chinese lenders advanced 7.47 trillion yuan of new loans last year, 6 percent less than the amount offered in 2010. That helped boost weighted-average lending rates to 8.01 percent in December, up 1.82 percentage points from the beginning of the year, according to the central bank.
Shares of Construction Bank fell 1.2 percent to close at HK$5.92 in Hong Kong, limiting its gains this year to 9.2 percent.
Construction Bank made 827 billion yuan of new loans in 2011, taking the total to 6.5 trillion yuan. Its net interest margin widened to 2.7 percent from 2.5 percent a year earlier, according to yesterday’s statement.
China relaxed lenders’ reserve requirements twice since the start of December and scrapped bill sales this year to ease a cash crunch that was stifling growth in the world’s second- biggest economy. Gross domestic product expanded 8.9 percent in the fourth quarter, or at the slowest pace in more than two years.
Construction Bank lent a total of 150 billion yuan in the first two months of 2012, Vice President Chen Zuofu said in Hong Kong today. The bank plans to increase lending by about 12 percent this year, according to yesterday’s statement.
Construction Bank’s non-performing loans rose 6.3 billion yuan in the fourth quarter to 70.9 billion yuan as of Dec. 31, accounting for 1.09 percent of the portfolio. The bank set aside 15 billion yuan against soured debt during the period, 10 percent less than a year earlier.
The lender is “fully prepared” for market volatility, Chief Risk Officer Huang Zhiling told reporters today, adding that bad loans will be “stable” and “relatively low” this year.
“For years there are lots of international worries on what’s going on in China, yet China comes out fine,” Frank Newman, chairman of Promontory Financial Group China Ltd. and former chairman of Shenzhen Development Bank Co. (000001), said on Bloomberg TV on March 23. “The government does not want to have a big banking problem this year or next year, and there are a lot of things they can do in terms of extending loans, rearranging government financing.”
China is trying to spur credit to smaller companies while limiting home loans that could create a property bubble. In a March 5 speech in Beijing, Premier Wen Jiabao said the government will “strictly implement” restrictions.
Fourth-quarter profit at Construction Bank was derived by subtracting nine-month figures from the 2011 earnings reported yesterday. The company posted a 26 percent increase in net income in 2011 to 169.3 billion yuan, according to the statement.
Net interest income rose 21 percent to 304.6 billion yuan in 2011. Fee income from services such as credit cards and trade finance advanced 32 percent to 87 billion yuan.
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