Mortgage lending buoys China Construction Bank's home advantage

It accounted for 31.4% of CCB’s total loans and 81.7% of personal loans.

Residential mortgage lending is set to buoy the growth prospects of China Construction Bank as the home rental segment continues to perform strongly, according to UOB Kay Hian. 

“CCB is a longstanding leader in infrastructure loans and residential mortgages. Infrastructure loans accounted for 25.8% of CCB’s total loans and 50.8% of corporate loans. Residential mortgages accounted for 31.4% of CCB’s total loans and 81.7% of personal loans,” according to UOB analyst Jonathan Koh.

The bank has launched comprehensive solutions for the home leasing market in major cities and has inked deals with 11 developers including Evergrande Group, China Vanke and China Merchants Property to build 5,000 rental flats in Shenzen.

CCB has also signed MOUs with local governments to operate service platforms for long-term leasing. It plans to create house price indices and house rental indices across various cities.

“The home rental market could provide a recurrent source of fee income. The ideal is to embed CCB into customers’ daily lives and be the first port of call whenever customers want to buy or rent a house,” Koh added.

Here’s more from UOB Kay Hian: 

We expect CCB’s loan quota to be unchanged at Rmb850b for 2018, representing loan growth of 7.1% (2017: 9.5%). 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 Quick Loan.

CCB has completed the rollout for its new generation core banking system, which has accelerated the development of new products. Personal consumer loans have grown 157% to Rmb192.7b in 2017, driven by Quick Loan (快貸). SME Quick Loan (小微快貸) has grown 5-fold to Rmb97.4b. The two new products provided the highest yield and fastest growth. Its WeChat banking users grew 35.4%. Mobile banking transaction volume increased 87.3% to Rmb57.3t.

CCB incurred hefty provisions of Rmb123.4b or 100.1bp, up 37.7%, in 2017 in order to meet requirement for loan-loss reserve/gross loans of 2.5%. Having already fulfilled the requirement, management expects absolute provisions and credit costs to be slightly lower in 2018. 

CCB has adopted IFRS 9, the new financial reporting standard for classification, measurement and impairment of financial instruments, effective 1 Jan 18. Management estimated that BVPS would decline 1%, CET-1 CAR would decline 0.1ppt but loan-loss coverage would improve 8ppt due to implementation of IFRS 9. CCB will strictly adhere to the requirements of IFRS 9.