Aug. 22 (Bloomberg) -- China Construction Bank Corp. joined rivals including Industrial & Commercial Bank of China Ltd. this week in posting profits that beat analyst estimates, on rising fee income and lower bad-loan provisions.

Construction Bank, the nation’s No. 2 lender by market value, had second-quarter net income of 29.55 billion yuan ($4.33 billion), according to calculations by Bloomberg derived by subtracting first-quarter results from first-half numbers reported yesterday. That compares to the 27.2 billion yuan average estimate of eight analysts surveyed by Bloomberg.

Results may not be as rosy next quarter as banks slash lending amid concern defaults will increase, according to Kenny Tang, an executive director at Hong Kong-based Redford Securities Co. 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.

The government plans to tighten capital requirements for banks, threatening to curb the lending that’s fueled a 60 percent rally in the nation’s stock market, three people familiar with the matter said yesterday.

“Second-half loan growth will inevitably slow down even without the official tightening, as the banks just can’t keep lending the way they did in the first half,” Redford’s Tang said. “It may not be a bad thing if that means loans are being channeled to projects that would actually help the economy and not just to speculators in the stock and real estate market.”

Zhang Jianguo, Construction Bank’s president, said in an Aug. 7 interview that the Beijing-based bank will cut lending by 70 percent to 200 billion yuan in the second half.

ICBC, Bank of Communications

ICBC, the world’s largest bank by market value, on Aug. 20 posted second-quarter profit that beat analyst estimates on credit growth and lower provisions for bad loans. Bank of Communications Ltd., China’s fourth-largest publicly traded lender, reported second-quarter profit on Aug. 19 that beat analyst estimates as outstanding loans jumped 31 percent.

Construction Bank, established in 1954 to fund roads, bridges, dams and other infrastructure, was China’s largest mortgage and real-estate lender until the first half of last year, when ICBC pushed it to second place.

For the first half, profit fell 4.9 percent from a year earlier to 55.8 billion yuan, beating the 52.9 billion yuan median estimate of seven analysts surveyed by Bloomberg News.

‘Noticeably Higher’

The earnings figure was “noticeably higher than what the market was looking for,” Sherry Lin and Daisy Wu, Hong Kong- based analysts at Credit Suisse Group AG, wrote in a report yesterday after earnings were announced. The analysts retained their “outperform” rating on the stock.

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.

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.

Hong Kong-listed shares of Construction Bank have risen 37 percent this year, compared with a 40 percent gain on the Hang Seng Index. The stock fell 0.9 percent to HK$5.84 yesterday. The earnings results were announced after the market closed.

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 22, 2009 01:38 EDT