China's CCB Reveals $1.06 Billion in Subprime Exposure


China Construction Bank, one of the country's big four state lenders, said it held US$1.062 billion worth of U.S. subprime mortgage loan-backed securities at the end of June and expects the securities to have "limited impact" on its operating results for the year.

Analysts said the U.S. subprime exposure to Construction Bank was manageable, because it only accounted for about 2.5% of its equity, and the company's shares jumped 4% on Monday amid a broad market rally.

Beijing-controlled China Construction Bank said in its first-half earnings report released late on Sunday that it had set aside 139 million yuan (US$18.37 million) to account for potential losses on its subprime-related portfolio, a small amount given its 6.11 trillion yuan in total assets.

"The 139 million yuan provisions seem insufficient, though it is difficult to assess at the time being how much loss it could incur in the future couple of seasons," Lehman Brothers wrote in a research note.

The exposure of Construction Bank is far lower than the US$9.65 billion revealed late last week by another big state-run lender, Bank of China. The news sent its shares skidding as much as 8% on Friday before they ended 5.4% lower.

Construction Bank also unveiled a special dividend of about 7.5 HK cents (0.96 U.S. cents) per share ahead of a planned domestic listing of A shares to raise roughly US$7.3 billion based on the stock's current Hong Kong price.

Bank of China has made a 1.15 billion yuan impairment charges against its subprime-related investment.

China's biggest bank, Industrial & Commercial Bank of China, on Thursday said it held US$1.23 billion in U.S. subprime-related mortgage-backed securities.  Its shares lost as much as 2.4% on Friday before closing 0.2% higher.

Construction Bank, posted a stronger-than-expected 47% jump in first-half profit, helping its shares rise as much as 4.6% to HK$6.12 in morning trade. It earned 34.22 billion yuan (US$4.5 billion) in the first six months of 2006, compared with 23.22 billion yuan in last year's first half.

Its results were boosted by fee income growth and wider interest margins, despite Beijing's moves to increase interest rates four times this year to curb the excess liquidity.

Construction Bank said its net interest margin was 3.11% at the end of June, compared with 2.7% a year earlier, beating ICBC's 2.65% and Bank of China's 2.66%.

The lender's net interest income rose 37% to 89.2 billion yuan in the first half, while net fee and commission income doubled to 12.66 billion yuan.

Its net fee and commission income accounted for 12.7% of its operating income -- in line with top lender ICBC but lagging Bank of China. Outstanding loans surged 13.2% to 3.03 trillion yuan at the end of June.