China Construction Bank, the country’s second-largest lender, said its net profit rose 1.5 per cent in the third quarter, though at the cost of dipping into its buffers set aside to cover bad loans.
In the three months to September 30, CCB reported net profit of 60.7 billion yuan up from 59.8 billion yuan for the same period in 2015.
CCB also reported that it had kept a grip on its bad loans as a proportion of its total lending, declaring that its non performing loan ratio fell by 0.07 percentage point in the third quarter to stand at 1.56 per cent.
The average NPL ratio for China’s banking industry in the first half of this year was 1.78 per cent, based on regulatory data.
Nomura analysts said in a report earlier this month that they expect the pace of growth in non-performing loans at Chinese banks to slow, but that the length of time required to digest or dispose of impaired loans to be longer than had been expected.
However, to achieve its increase in net profit and improved NPL ratio, China Construction Bank allowed its bad loan buffer to fall below the regulatory minimum. The bank’s ratio of allowances to non-performing loans was 148.78 per cent, below the required 150 per cent.
Bank of China’s bad loan buffers dipped below 150 per cent in the first quarter of this year, as did ICBC’s in the first and second quarters.
The International Monetary Fund’s acting director for monetary and capital markets, Ratna Sahay, said in Hong Kong on Wednesday that Chinese banks need to build up greater buffers against bad debt to cover potential further losses from loans.
Few observers have confidence in the headline non performing loan figures announced by mainland banks.
The increase in profit at CCB was attributed to a reduction in expenses rather than increasing top line revenue.
CCB’s net interest income fell by 9.7 per cent in the third quarter from the prior quarter, while fee and commission income ticked up 0.3 per cent.
With traditional interest income under pressure from low interest rates, mainland banks have been trying to identify other sources of growth, and it had been hoped that this might come from fee and commission income.
“Agency insurance service, wealth management products and custodial business grew rapidly, and products such as credit cards and electronic banking achieved sound growth,” CCB said in a statement to the Hong Kong stock exchange, referring to the first nine months of the year.
However, fee and commission income only grew by 4 per cent.
CCB’s shares fell for the third straight day in Hong Kong on Thursday to close at HK$5.67, down 0.9 per cent.
China Construction Bank is the second of China’s “big five” banks to report their third quarter earnings. On Wednesday Bank of China reported that its net profit rose by 2.4 per cent in the third quarter. Agricultural Bank of China, Industrial and Commercial Bank of China, and Bank of Communications are due to announce their quarterly results on Friday.