China Construction Bank Has 1.4% Net Gain as Bad Loans Rise

  • CCB's report wraps up earnings from the big 5 Chinese lenders
  • Banks have pared back bad-loan provisions to aid profits

China Construction Bank Corp., the nation’s second-largest lender, reported a 1.4 percent gain in first-quarter profit from a year earlier even as bad loans climbed.

Net income rose to 68 billion yuan ($10.5 billion) in the three months ended March 31, the Beijing-based lender said in a filing to the Hong Kong stock exchange Friday. Nonperforming loans jumped to 176 billion yuan from 166 billion yuan at the beginning of the year, it said.

Construction Bank was the last of the five big state-controlled lenders to report earnings, amid a rising tide of bad loans that’s capping profits. Industrial & Commercial Bank of China Ltd., the industry giant, managed only a 0.6 percent gain in net income for the quarter after paring back its bad-loan provisions to below a regulatory minimum.

The risk from soured credit sees China’s big five trade in Hong Kong at an average of about 0.62 times estimated book value, close to February’s record low of 0.55 times, according to data compiled by Bloomberg. Analysts estimate that banks’ true levels of nonperforming loans are several times higher than the official numbers.

Construction Bank set aside 27 billion yuan of provision against bad loans in the first quarter, an increase of 40 percent from a year earlier. As a result, its bad-loan coverage ratio rose 0.72 percentage points from the end of last year to 151.7 percent.

Declining Buffers

The buffer dropped at all of its major rivals with the ratio falling to 141 percent at ICBC and 149 percent at Bank of China Co., below the 150 percent mandatory minimum.

Construction Bank Chairman Wang Hongzhang said on Monday a reduction in the ratio to about 120 percent to 130 percent would be “reasonable” and “possible,” and the regulator “may differentiate among different banks on ratios.”

Alongside bad loans, lenders are grappling with pressure on margins after the central bank cut interest rates six times since November 2014 and removed a cap on deposit rates in October 2015. 

Construction Bank’s net interest income fell 3.1 percent in the first quarter to 107.9 billion yuan, after its net interest margin -- a key measure of lending profitability -- narrowed by 32 basis points to 2.4 percent.

— With assistance by Jun Luo

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