China Construction Bank

CCB says greater competition set to hurt growth

PUBLISHED : Monday, 25 March, 2013, 12:00am
UPDATED : Monday, 25 March, 2013, 5:34am

China Construction Bank, the mainland's second-biggest bank by assets after Industrial and Commercial Bank of China, has warned that interest rate liberalisation could hurt its future income growth, after cuts to government-set benchmark interest rates in the middle of last year.

In a statement posted yesterday, the bank said interest rate liberalisation meant tougher competition: "Market competition tends to be more intensive, as both non-bank financial institutions and quasi-bank institutions intervene in banking businesses, including wealth management, payment and settlement," it said.

CCB's annual results, released yesterday showed net profits for the Beijing-based lender climbed 14.1 per cent year on year to 193.2 billion yuan (HK$238.8 billion) last year, slightly higher than the average market expectation of 192.6 billion yuan, though the pace of growth was the slowest in six years, thanks to a slowing domestic economy and Beijing's tightening measures.

May Yan, a China banking analyst at Barclays Capital, said: "CCB's net interest margin is likely to go further downward as new loans have been repriced at cheaper rates in the first quarter, following the Chinese central bank's cuts to the benchmark lending and deposit rates last year."

The slowdown in the growth of profitability was not a surprise to market participants after former premier Wen Jiabao promised to push forward market-based reforms of the rigid interest rate systems and break down the monopoly that a small number of state-owned banks enjoyed.

CCB's net interest margin, which measures the spread between funding costs and lending income, edged up 0.05 percentage points to 2.75 per cent last year, while return on equity, a measure of profitability, fell 0.53 percentage points to 21.98 per cent, suggesting that the bank may face mounting pressure from slowing interest income and increases in provisions amid deteriorating asset quality.

CCB's net interest income, which represented 76 per cent of its operating income, rose 15.9 per cent year on year to 353.2 billion yuan in 2012, while its net fee and commission income increased by 7.49 per cent to 93.5 billion yuan.