CCB cites better loan quality as it weighs risks
China Construction Bank, the second-largest mainland lender by assets, says its credit quality improved in the first quarter, but the bank is still taking precautionary measures to guard against lurking risks.
In an interview with the South China Morning Post in Beijing yesterday, CCB president Zhang Jianguo said these measures had helped the bank to minimise the damage from business owners fleeing to avoid loan repayments since last year.
Of the 47 business owners reported to have fled in the past year, 17 were CCB clients. But the bank was onlymarginally affected because of the strict guarantees and pledges it has put in place, Zhang said.
The bank's non-performing-loan ratio and total bad debt fell in the first quarter compared with the previous quarter. The NPL ratio fell 0.05 percentage points quarter on quarter to 1.04 per cent.
Even though lending to small enterprises is associated with higher risks, CCB said it would continue to extend loans at reasonable rates.
CCB's average interest rate to 'small and micro-enterprises' stood at 7.8 per cent, with total outstanding loans to such entities at around 660 billion yuan (HK$810 billion), about 10 per cent of the bank's total loans, at the end of the first quarter.
Even though CCB lags behind Agricultural Bank of China in the rural sector, its agriculture-related loans rose to 1.1 trillion yuan, more than 16 per cent of its total outstanding loans.
CCB also aims to maintain its leading position in personal mortgage loans. Outstanding mortgages rose 2 per cent to about 1.35 trillion yuan in the first quarter. Last year the bank's personal residential mortgage loans rose by nearly 21 per cent.
The bank would, however, rein in loans for car finance, property development and other areas with excess capacity, said Zhang.
'We have maintained a consistent lending policy towards the real estate business since 2006,' said Zhang. He said CCB loans for property development would not be allowed to rise beyond 30 billion yuan each year.
The bank's outstanding loans for property development stand at 440 billion yuan, a slight increase compared with 419 billion yuan at the end of last year. Loans for property development rose only 0.16 per cent last year, the smallest increase in five years.
The bank believes interest rate liberalisation on the mainland will be a lengthy process, taking 10 years or more, but has started to prepare for it all the same.
Xu Yiming, general manager of CCB's asset liability management department, said interest rate liberalisation would decrease the bank's net interest margin. CCB has been adjusting its asset mix by increasing its retail loan business and increasing non-interest income through operations, such as its credit cards business, and improving its loan pricing.
Xu added the mainland's banking industry needs to prepare itself for interest rate liberalisation, including developing a mechanism for a market-determined interest rate benchmark. Banks, he said, should also be allowed to file for bankruptcy and must develop an insurance system for deposits.
On overseas expansion, Zhang said that, while CCB has not been as aggressive as Bank of China or Industrial and Commercial Bank of China, it has steadily followed through its targets set in 2006, opening two to three overseas outlets every year.
'CCB's overseas expansion is inevitable because China is becoming ever more reliant on the global economy,' said Zhang. The bank would grow mainly through organic means, but would also be open to good overseas acquisitions, he said.
On Singaporean sovereign wealth fund Temasek's divestment of its stake in CCB last week, Zhang said the bank was not notified before the move, but he understood that Temasek was rebalancing its portfolio after increasing its stake in ICBC.
Amount, in US dollars, that Singaporean sovereign wealth fund Temasek sold its shares in China Construction Bank for last week