China Construction Bank profit growth slows to 9.4pc on provisions
Net profit rises 9.4pc to 56.8 billion yuan in the slowest quarter in more than five years
China Construction Bank (CCB), the mainland's second-largest lender, reported its slowest third-quarter earnings growth in more than five years yesterday as increased loan-loss provisions eroded profits.
Net profit rose 9.4 per cent to 56.77 billion yuan (HK$72.4 billion) in the three months to September 30 from 51.91 billion yuan in the year-earlier period, the bank said in a statement to Hong Kong's stock exchange.
That was 1.6 per cent lower than the average estimate of 57.69 billion yuan of four analysts polled by Reuters. The growth rate slowed from the 12.9 per cent growth it recorded for the year's first-half. For the year's first nine months, net profit rose 11.6 per cent year-on-year.
CCB was the first of the mainland's big four commercial banks to report third-quarter results.
Mainland banks remain among the most profitable in the world but they face increasing challenges from shrinking margins and rising bad loans. Moreover, the mainland's economic growth rate is falling as policymakers liberalise interest rates.
CCB's non-performing loan ratio had fallen slightly, to 0.98 per cent of total loans, at the end of last month from 0.99 per cent at the end of June. It set aside provisions on loans of 9.3 billion yuan in the third quarter, up 12.4 per cent year-on-year, in a sign that the bank was expecting a rise in bad loans.
A Citi research report said overcapacity in sectors like steel and solar panel production and lending to small firms were the drivers of mainland banks' non-performing loans.
CCB's net interest margin for the year's first nine months was 2.71 per cent, down 0.03 percentage points from the year-earlier period. Mainland banks' interest margins are expected to shrink in the medium term as Beijing liberalises interest rates.
The People's Bank of China in July removed the floor on lending rates but it maintains a cap on deposit rates as well as loan quotas, constraining the flexibility of lenders to allocate capital. Last week, it introduced a market-oriented lending benchmark, in the latest incremental step towards market-based credit allocation.
Market watchers will be looking for further signs of interest rate liberalisation in the outcome of a key Communist Party meeting scheduled for next month.
CCB's third-quarter fee and commission income grew 18.5 per cent year-on-year. Its loan book grew 3.5 per cent in the three months to September 30 after being flat in the three months to June 30.
That increase in lending defied predictions that credit expansion would have slowed after the central bank engineered a cash crunch in June.