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China Construction Bank

China Construction Bank unlikely to buy into Europe

Chairman Wang Hongzhang is quoted by analysts as saying that the euro-zone debt crisis added risk to any purchases made in region

PUBLISHED : Saturday, 29 September, 2012, 12:00am
UPDATED : Saturday, 29 September, 2012, 3:13am

China Construction Bank is seeking to expand overseas but is unlikely to acquire large banks in Europe as the debt crisis remains unclear, Barclays' analysts say in a research note.

The mainland's second-largest lender by assets was unlikely to acquire large banks in developed areas such as Europe, Barclays' analysts, including May Yan, said in their note yesterday, quoting Construction Bank chairman Wang Hongzhang.

"The sovereign-debt issue is still developing and risks are unclear. Emerging-market countries are more attractive, but their regulatory, legal and cultural environment is challenging," they said.

The Financial Times reported earlier this month that Construction Bank might acquire banks in Europe, but the mainland lender rejected the report. Some analysts said at the time that an acquisition was unlikely as the bank was under pressure to meet the higher capital requirements from next year.

Linus Yip Sheung-chi, a strategist with First Shanghai Securities, agreed that the European debt crisis remained uncertain and could deteriorate.

"It is still risky for Chinese lenders to buy banking assets overseas, but they may consider acquiring particular businesses from their European counterparts," Yip said, adding that retail banking business could be attractive to Chinese banks.

Construction Bank also told the Barclays' analysts that its net interest margin would remain stable in the fourth quarter when compared with the third quarter.

The margin was 2.71 per cent in the second quarter, and continued to improve in July and last month.

"They believe loan demand will continue to be strong in 2013, hence pricing power will stay," they said.

Although the People's Bank of China was unlikely to cut interest rates in the near future, mainland banks' net interest margins and net interest income would be under pressure after the two interest rate cuts, Yip said. The central bank announced interest rate cuts in July and June.

Yip said the banks should consider further developing their fee income as greater interest rate liberalisation might drag down their interest income. Construction Bank said it would expand its non-banking financial services to lift its fee income, the research note said.

Separately, China Construction Bank (Asia), the Hong Kong banking unit of Construction Bank, announced yesterday that its profit rose 11.7 per cent to HK$447 million in the first six months of this year from the same period last year.

Although net interest margin dropped 9 basis points to 1.43 per cent in the January-June period, net interest income grew 20.4 per cent to HK$993 million, the bank said.