China Construction Bank

Construction Bank posts first-half earnings surprise as it keeps bad loans in check

First-half net profit rises to 133.9 billion yuan, beating analysts’ estimates

PUBLISHED : Thursday, 25 August, 2016, 10:31pm
UPDATED : Thursday, 25 August, 2016, 11:00pm

China Construction Bank reported a surprising 1 per cent rise in interim profit, as it kept its non-performing loans in check during the first six months, becoming the first among the country’s four biggest lenders to turn prudential management to sound financial results.

Net profit rose to 133.9 billion yuan (HK$156 billion) in the first half, more than the 131.8 billion yuan average estimate by three analysts polled by the South China Morning Post.

Net interest income at the Beijing-based bank fell 6 per cent to 210.99 billion yuan, while net fees and commission income rose 5.6 per cent to 67.19 billion yuan.

Construction Bank’s non-performing loans were 1.63 per cent of its total lending at the end of June, unchanged from the end of March and slightly less than the Chinese banking industry average of 1.78 per cent, based on regulatory data. The bank’s balance sheet grew over the period, with total assets expanding 7.7 per cent to 19.76 trillion yuan.

Construction Bank “deserves to be ahead of the industry in showing a decline in new non-performing loans,” said China Merchants Securities’ head of financials research Ma Kunpeng. The bank “has been ahead in recognising risks and writing off non-performing loans these past couple of years,’ he said.

The bank has been closely watching its non-performing loans from the retail and wholesale sectors. Exposure from property, mining and manufacturers are otherwise under watch.

“The probability that these sectors will lead to big increases in non-performing loans is tiny,” said BOC International’s banking analyst Yuan Lin.

Construction Bank now deliver a return-on-equity ratio of 17 per cent on its capital, the highest among China’s four largest banks, with an average of 16 per cent among them, according to data by Wind Information System.

Construction Bank’s full-year dividend yield is estimated at 5.6 per cent by BOC International’s Yuan, higher than Reuters’ average estimate of 4.25 per cent for the industry in China. The bank didn’t declare an interim dividend.

The bank’s “payout rate is the best in the industry,” Ma said. “Considering the bank’s better return on asset and asset quality, we thought Construction deserves better valuation.”

Shares of the bank have risen 13.5 per cent in the past 12 months, advancing 1.4 per cent on Thursday to HK$5.82 in Hong Kong. On the Shanghai bourse, the stock rose 0.2 per cent to 5.33 yuan before earnings were announced.