China Construction Bank's profit rose 9% to $6.5b in Q4

Net interest margin expanded 2.36% as credit card loans and consumption loans performed strongly.

China Construction Bank net profit rose 9% YoY to $6.5b (RMB40.4b) in Q4 amidst an 9.8% yearly expansion in personal loans, according to UOB Kay Hian. 

Credit card loans and consumption loans posted high yields after growing 14.3% and 21.9% respectively in the second half of the year. The mortgage loan segment also performed positively after rising 7.3% over the same period.

Net interest margin, which measures the returns on an investment over the incurred expenses, remained positive after expanding 16bp to 2.36%.

“Management expects NIM to further expand qoq in 1Q18 due to positive impact from more new loans. We expect NIM to expand 5bp to 2.26% in 2018,” the report added.

Here’s more from UOB Kay Hian: 

NPL ratio was stable at 1.49%. Loans overdue for more than three months contracted 13.7% hoh in 2H17. We note that NPLs for transportation, storage & postal services increased by a significant Rmb7.5b qoq. Nevertheless, management was conservative and put in hefty provisions of Rmb40.4b (118.7bp), up 37% yoy and 53% qoq. Thus, loan loss coverage improved 8.2ppt qoq to 171.1%. 

We expect CCB’s loan quota to be unchanged at Rmb850b for 2018, representing loan growth of 7.1%. The loan quota would be allocated
evenly between corporate banking and personal banking. For corporate banking, CCB will focus on its strength in infrastructure loans. For personal banking, CCB sees growth from residential mortgages targeted at tier-1 and tier-2 cities and its consumption loans branded as Rapid Personal Loan Online.

CCB has conservatively classified loans that are more than 60 days overdue as NPLs, and this is more stringent than the regulatory requirement of 90 days. This conservative practice creates an extra buffer for rainy days. CCB is also the only bank with NPL exceeding total overdue loans. The gap between NPLs and overdue loans is set to further widen because CCB is conservative in recognition of NPL.