China Construction Bank Profit Beats Estimate on Margins

China Construction Bank Corp. (939), the nation’s second-largest lender by market value, posted profit growth that beat expectations as lending margins widened.

Net income increased 9 percent to 38.2 billion yuan ($6.1 billion) for the three months through December from 35 billion yuan a year earlier, based on full-year figures released by the Beijing-based lender yesterday. That exceeded the 36.9 billion yuan average estimate of 25 analysts surveyed by Bloomberg. Net income rose 11 percent in 2013 to 214.7 billion yuan.

While profit was better than expected, China Construction Bank and its peers face obstacles to future earnings growth as a slowing economy weakens loan demand and asset quality. Premier Li Keqiang’s government is discouraging borrowing by overextended industries, and China’s biggest banks are under pressure to raise funds to address tougher capital requirements.

“The results aren’t especially outstanding when compared with the other big banks,” Chen Xingyu, a Shanghai-based analyst at Phillip Securities Research, said by phone. “Margins widened because liquidity was tight last year. 2014 will be even more challenging for the bank.”

China Construction Bank was the last of China’s four largest lenders to report earnings in the past week. Fourth-quarter profit at Agricultural Bank of China Ltd. and Bank of China Ltd. rose at least 10 percent, while Industrial & Commercial Bank of China Ltd. had an 8 percent increase.

Photographer: Brent Lewin/Bloomberg

While profit was better than expected, China Construction Bank Corp. and its peers face obstacles to future earnings growth as a slowing economy weakens loan demand and asset quality. Close

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Photographer: Brent Lewin/Bloomberg

While profit was better than expected, China Construction Bank Corp. and its peers face obstacles to future earnings growth as a slowing economy weakens loan demand and asset quality.

Loan Growth

Shares of China Construction Bank rose 1.3 percent to HK$5.43 as of 9:38 a.m. local time. The stock has declined 7.5 percent this year in Hong Kong, compared with the benchmark Hang Seng Index (HSI)’s 5 percent drop.

China Construction Bank advanced 14 percent more loans by value in 2013 than a year earlier, boosting total outstanding credit to 8.6 trillion yuan, according to the earnings statement posted on the website of the Shanghai Stock Exchange. Loan growth in 2012 was 16 percent.

Net interest margin, a gauge of lending profitability, rose to 2.74 percent at the end of December, compared with 2.71 percent at the end of September.

The lender played the role of a policy bank in the 40 years after its 1954 founding, disbursing government funds for the nation’s infrastructure developments, until China Development Bank Corp. was set up in 1994.

Lending is slowing as the government discourages borrowing by overextended industries and local governments, and as China’s economic expansion eases. Growth in local-currency loans dropped to 14 percent last year, the least since 2005, People’s Bank of China data show.

Low Valuations

Shares of the Chinese banks are trading near record-low valuations as concerns mount over the inability of companies including property developers to repay debt after the nation’s first onshore bond default this month.

The bad-loan ratio at China Construction Bank was at 0.99 percent at the end of December, unchanged from a year earlier even as soured debts rose to 85.3 billion yuan from 74.6 billion yuan, the company said.

China’s economy, the world’s second largest, is forecast to grow 7.4 percent this year, the weakest pace since 1990, based on the median estimate in a Bloomberg News survey. The State Council, or cabinet, said March 19 it will speed up construction projects and other measures to support the economy.

Zhejiang Xingrun Real Estate Co. collapsed with 3.5 billion yuan of debt, weeks before Shanghai Chaori Solar Energy Science & Technology Co. became the first onshore bond issuer to default this month. In January, a near-default was averted when a 3 billion-yuan China Credit Trust Co. product that lent money to a collapsed coal miner was bailed out.

To contact Bloomberg News staff for this story: Aipeng Soo in Beijing at asoo4@bloomberg.net

To contact the editors responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net Joshua Fellman, Russell Ward

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