China Construction Bank Corp., the nation's third-largest, said profit fell 1.7 percent in 2006 as provisions rose and the expiration of a tax break outweighed gains on lending in the world's fastest-growing major economy.
Full-year net income edged down to 46.3 billion yuan ($6 billion), or 0.21 yuan a share, from 47.1 billion yuan, or 0.24 yuan a share a year earlier, the Beijing-based bank said in a statement. Pretax profit, excluding the impact from losing the tax break related to the bank's 2003 bailout and preparation for initial public offering, rose 19 percent to 65.7 billion yuan.
Growth at Construction Bank, led by Chairman Guo Shuqing, is accelerating as it expanded lending 17 percent last year, the most among China's three biggest publicly traded banks, after the nation's economy grew at the fastest pace in more than a decade. Future growth may be helped by a cushion of capital that was 50 percent higher than the required ratio on June 30.
Chinese banks extended 3.18 trillion yuan of new loans last year, exceeding the central bank's target by more than a quarter. Industrial & Commercial Bank of China Ltd., the nation's largest, had a 31 percent gain in profit as total loans grew 10 percent.
Construction Bank's net income was in line with an average 46.4 billion yuan estimate by 31 analysts in a Bloomberg survey. Construction Bank's earnings were hurt by the phasing out of a government tax rebate in the second half after its October 2005 IPO. The bank paid 19.4 billion yuan in taxes last year, compared with 8.3 billion yuan a year earlier.
Provision charges against loans turning sour rose by 39 percent to 19 billion yuan, while a foreign exchange loss amounted to 6.1 billion yuan.
Net interest income rose 20.4 percent last year to 140.4 billion yuan. Income from fee-based services, including distribution of mutual funds and insurance policies, surged 60.5 percent to 13.6 billion on stepped-up efforts to diversify revenue sources.
The net interest margin at Construction Bank widened to 2.79 percent from 2.78 percent a year earlier as the central bank twice raised lending rates last year to cool the economy, while lifting deposit rates only once.
The bank will benefit more than rivals from interest rate increases this year, said Holly Tao, a Shenzhen-based analyst at Guotai Junan Securities Co. It has a higher proportion of long- term, high-yield infrastructure and mortgage loans and more short-term deposits that helped keep its funding costs low.
Construction Bank, established in 1954 to fund the building of roads, bridges, dams and other infrastructure, is now the country's largest mortgage and real estate lender. It provides 23.1 percent of the nation's mortgages.