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Bank's prudence leads to positive net profits

By Wang Bo (China Daily)
Updated: 2009-08-25 08:07

China Construction Bank (CCB) reported a positive growth in net profit this year and will continue to adopt a proactive and steady credit policy in the second half, a senior official of the bank said.

"The bank has been very prudent in lending to customers in the first half, and loan growth is set to slow down for the rest of year," Guo Shuqing, chairman of the nation's second largest lender by assets, said at a media briefing on the bank's half-year results.

His remarks were confirmed by Vice-President Zhu Xiaohang, who told Hong Kong media that the bank aimed to extend a total of 900 billion yuan ($132 billion) in new loans this year. The bank advanced 731.4 billion yuan in new loans in the first half in response to a government call to back the nation's giant stimulus package.

The bank said of its half-year results, released on Friday, that its net profit declined 4.9 percent from a year earlier, reaching 55.8 billion yuan, while operating income for the same period dropped 3.2 percent to 131.5 billion yuan.

"The decline in net profit was largely due to a narrowing interest margin and a rise in bad loan provisions," Guo said.

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Like other Chinese banks, CCB has faced enormous pressure from narrowing interest margins following the central bank's aggressive interest rate cuts in the second half of 2008.

Net interest income, accounting for nearly 80 percent of the bank's operating income, dropped 7.75 percent to 102.47 billion in the first half, as a lending surge in the first six months failed to offset the effect of a shrinking spread.

Guo said the interest margin pressure has largely eased and may have bottomed out, but it is still subject to any monetary authority policy change and market demand.

The bank, in which Bank of America owned a 10 percent stake, spent $70 million earlier this month to acquire AIG Finance, the Hong Kong unit of the American International Group, in a bid to enhance its presence in overseas markets.

The deal is the Chinese lender's first overseas acquisition in three years after it bought 17 outlets of Bank of America in Hong Kong and Macao for $1.24 billion in August 2006.

"Buying AIG Finance is our latest move in overseas expansion and, besides organic growth, we will not miss other good M&A opportunities to enhance our global presence," Guo said. However, he noted CCB was positioned to mainly focus on the domestic market so it would not conduct mega-deals to expand overseas as Citigroup did a few years ago.