2 key positives to China Construction Bank's RMB59.6b profit in 1Q13

Find out how profits grew 16%.

According to Barclays, CCB reported net profit of RMB59.6bn for 1Q13, up a very strong 16% y/y. Both net interest income and non-interest income reported strong y/y growth, up 12% and 21% respectively.

Here's more from Barclays:

Profit was further lifted by tight expense control (up 10% y/y) and decline in cost-to-income ratio (-1.31ppt y/y to 31.8% in 1Q13). Key positives, in our view, included 1) strong fee growth (+19% y/y or +23% q/q), 2) steady asset quality as NPL amount increased moderately by 4.2% in 1Q13 while NPL ratio was flat at 0.99% as of end-1Q13.

Negatives for the quarter include: 1) 7bps q/q NIM decline in 1Q13, in-line with expectation but worse than peers, 2) CCB’s Tier 1 ratio declined moderately to 10.92% down 40bps under the new capital rule. We maintain our OW rating on CCB.

Slow RMB loan growth but rapid reverse repo growth: Domestic RMB loans only grew 2.8% -- corporate loans up 2.3% and personal loans up 4.4%, much slower than overseas loans (+38% in 1Q13). CCB’s overall loan growth (+4.6% in 1Q13) was lower than deposits (up 5.8%) resulting in 75bps decline in LDR ratio in 1Q13 to 65.5%.

The slightly stronger deposit growth was almost completely due to growth in personal deposits (+12.4% in 1Q13 vs. 0.3% corporate loan growth). With excess liquidity on balance sheet, CCB increased reverse repo (+50.6% in 1Q13) to earn interest income.

Solid fee income growth and good expense control: CCB’s fee income reached RMB28.9bn in 1Q13, up by 19% y/y or 23% q/q, driven by advisory services, housing finance, credit card etc. As its operating expenses growth (+10% y/y) was lower than that of operating income (+15% y/y), CCB’s cost-to-income ratio improved by 1.31ppt to 31.2% in 1Q13.

NIM decline within expectation: CCB’s NIM dropped 7bp q/q to 2.71% in 1Q13, in-line with our expectation.

Steady asset quality: The bank’s asset quality was largely steady. Its non-performing loans was RMB77.8bn, up 4.2% in 1Q13 and the impaired loan ratio was flat at 0.99% as of end-1Q13. Credit cost was 44bps in 1Q13 (vs. 40bps in 1Q12 and 83bps in 4Q12), which maintained the bank’s reserve/loans ratio 2.68%.

Still strong capital position under new capital rules: CCB’s Tier-1 ratio and total CAR dropped by 40bps/69bps q/q to 10.92%/ 13.63% at end-1Q13, respectively. The capital ratios drop were less than most of its bank peers. The two ratios were significantly above regulatory requirements. No capital raising needs for CCB.