Oct. 24 (Bloomberg) -- China Construction Bank Corp., the world’s second-largest lender by market value, posted a second straight gain in quarterly profit on record lending and fewer provisions for defaults and subprime loan-related investments.

Third-quarter net income climbed to 30.3 billion yuan ($4.4 billion), or 0.13 yuan a share, from 25.6 billion yuan, or 0.11 yuan, a year earlier, the Beijing-based company said in a statement to Hong Kong’s stock exchange yesterday. That beat the 29.8 billion yuan average estimate of six analysts surveyed by Bloomberg.

Construction Bank, led by Chairman Guo Shuqing, rose to a 17-month high in Hong Kong yesterday as investors shrugged off concerns that record lending might cause bad debts to soar. China’s economy grew 8.9 percent in the quarter from a year earlier, the government said yesterday, making it the fastest pace in a year.

“The worst is over for Chinese banks and their earnings will improve quarter by quarter along with the economic growth,” Cheng Jiaoyi, an analyst at Qilu Securities Co. in Shanghai, said in an interview. “We expect China Construction Bank to post a 15 percent gain in profit next year as it stands to benefit the most from the recovery among the big banks.”

Shares of Construction Bank advanced 1.7 percent to HK$7.05 before the announcement, the highest since May 2008. The stock is up 66 percent this year, giving the lender a market value of $213 billion, trailing only Chinese rival Industrial & Commercial Bank of China Ltd.

Construction Bank extended 879.6 billion yuan of new loans in the first nine months, up 23.8 percent from the beginning of the year. Non-performing loans accounted for 1.57 percent of the total as of Sept. 30, narrowing from 1.71 percent three months earlier.

Chinese banks advanced a record $1.27 trillion of new credit in the first nine months of the year, an increase of about 150 percent from a year earlier, prompting the nation’s banking regulator to warn of rising risks.

Guo said in August that excess cash in the banking system had led to “bubbles” in capital markets. The lender aims to keep new credit in the second half to 200 billion yuan, President Zhang Jianguo said in an August interview.

China’s cabinet said this week it will continue with monetary and fiscal stimulus measures even after the economy exceeded expectations. The State Council also signaled that inflation concerns will be an increasing focus in policymaking as the rebound strengthens.

Earnings Visibility

Chinese banks “offer probably the clearest earnings visibility” for 2010 among major industries, JPMorgan & Co. analysts led by Samuel Chen wrote in an Oct. 11 report. They forecast 32 percent average earnings growth for Chinese lenders next year.

Net interest income, or revenue from borrowers minus interest paid to depositors, dropped 7 percent to 53.1 billion yuan from 57.1 billion yuan a year earlier. Net interest margin, a measure of loan profitability, narrowed to 2.41 percent from 3.3 percent a year earlier, according to yesterday’s statement.

Construction Bank’s net fees and commissions from issuing credit cards, custodian services and mutual fund sales rose 31 percent to 12.3 billion yuan.

The lender set aside 3.47 billion yuan in provisions against potential losses on loans and U.S. subprime-debt related investments during the quarter, down 56 percent from a year earlier.

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 Industrial & Commercial Bank of China Ltd. pushed it to second place.

China’s property sales jumped 73 percent in the first nine months of 2009 from a year earlier to 2.75 trillion yuan.

--Luo Jun. Editors: Joost Akkermans, Philip Lagerkranser

To contact Bloomberg News staff of this story: Luo Jun in Shanghai at +8621-6104-7021 or jluo6@bloomberg.net

Last Updated: October 23, 2009 12:00 EDT