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China Construction Bank profit up 10.4 percent

April 28, 2014

BEIJING (AP) — China Construction Bank Ltd., one of the country’s four main state-owned lenders, said Monday that its quarterly profit rose 10.4 percent on an increase in interest payments and insurance income despite a slowing economy and changes in the industry.

The Beijing-based lender earned 65.8 billion yuan ($10.9 billion), or 0.26 yuan (4 U.S. cents) per share, in the three months ending March 31. Net interest income rose 11.8 percent to 103.2 billion yuan ($17.2 billion) and fee income rose 11.2 percent to 32.9 billion yuan ($5.4 billion).

The improvement came despite a steady decline in China’s economic growth, which fell to 7.4 percent in the first three months of the year, and changes under way in the banking industry that will squeeze profit markets.

Beijing ended controls last year on interest rates charged on loans. That will allow borrowers with stronger credit records to negotiate lower rates, narrowing the margin between what they pay and what banks pay depositors.

Chinese banks’ interest rate margins of about 3 percent are among the largest of any major economy. That has left them flush with cash but prompted complaints they are holding back economic development.

Construction Bank’s total assets rose by 5 percent over the course of the quarter to 16.1 trillion yuan ($2.7 trillion).

The industry’s total profits are equivalent to about 3 percent of China’s economic output, the biggest share for any major economy.

Chinese leaders are promising to make banking more market-oriented. That could include requiring banks to pay higher interest on savings, which would put more money in consumers’ pockets and promote the Communist Party’s goal of nurturing domestic consumption to reduce reliance on trade and investment to drive economic growth.

Banks are trying to prepare for more market-oriented operations by developing other lines of business including credit cards and insurance.

Construction Bank’s latest profit was helped by income from its insurance subsidiary, which more than tripled to 7.6 billion yuan ($1.3 billion).

“Whether the strong growth of CCB’s life insurance subsidiary is sustainable remains to be seen,” said Barclays analysts in a report.

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