CCB sets sights on emerging markets
China Construction Bank yesterday said it would speed up overseas expansion this year, despite seeing a deterioration in asset quality at home along with other mainland banks.
Wang Hongzhang, 57, who picked up the baton at the mainland's second-largest lender by market value from former Chairman Guo Shuqing at the end of last year, said at a post-results briefing in Hong Kong yesterday that CCB would focus on emerging markets and venture into retail banking. That would entail a shift from servicing Chinese corporate clients overseas, he added.
The bank's faster rise in bad loans compared with other mainland banks was mainly because it was more prudent and forthright in realising asset deterioration, said Wang. 'Our outstanding non-performing loans and non-performing loan (NPL) ratios might be higher than other banks' but in reality we are no worse, and perhaps even better,' he said.
CCB's net profit rose about 25.2 per cent to more than 169 billion yuan (HK$207 billion) year on year, falling short of analysts' estimates due to a drop in fee income in the last quarter of last year. The bank's NPL ratio fell 5 basis points to 1.09 per cent, but bad debt rose 10 per cent to 70.9 billion yuan in the last quarter, resulting in a quarter-on-quarter NPL ratio increase.
Mainland banks' overall bad debts rose 5 per cent in the fourth quarter, said Michael Werner, a senior analyst at Sanford C. Bernstein.
Stanley Li, a senior analyst at Mirae Asset Securities, said that as the mainland economy slows down, bad loans will inevitably rise. He added, however, that CCB has a reputation for 'being a good kid' as it was one of the earliest banks to make provisions for off-balance-sheet items and one of the earliest to realise more bad loans in the third quarter last year.
Outstanding loans related to local-government financing vehicles (LGFVs) - companies set up to borrow from banks on behalf of local governments that are often barred from doing so - dropped by 112.16 billion yuan to about 400 billion yuan at the end of last year. The NPL ratio among CCB's LGFV loans was slightly higher than the bank's overall NPL ratio, said Wang.
About 85.7 per cent of its LGFV loans were fully backed by cash flow, indicating the projects were generating enough profit to service the loans.
CCB's fee income fell 14 per cent quarter on quarter, after the banking watchdog cracked down on irregularities related to lenders' fee-income business in the past few months.
Zeng Jianhua, CCB's chief financial officer, said the bank had cancelled 34 fee items it deemed unreasonable for customers. It also made sure small-and-medium sized enterprises trying to borrow loans were not forced into paying extra fees.
Zeng said the bank did not have plans to raise equity this year. CCB's capital adequacy ratio (CAR), capital measured against risk-weighted assets, improved by 90 basis points in the fourth quarter to 13.68 per cent. Its core CAR, which mainly consists of equity, rose 40 basis points quarter on quarter to 10.97 per cent.
China Construction Bank's current valuation, in US dollars