(Reuters) - China Construction Bank (CCB), posted a 20 percent rise in second-quarter profit as the world's second-biggest lender by market value seeks to raise $11 billion to fuel growth restrained by a weak capital base.
Profit growth at CCB, China's biggest lender to home buyers and construction projects, beats analyst expectations, but slowed from last quarter's 34 percent pace, foreshadowing the challenges Chinese banks will face in the second half.
"On the one hand ... the environment for comprehensive operations will loosen, providing excellent opportunities for nurturing new types of businesses," CCB, which is 11 percent owned by Bank of America, said in a statement to the Hong Kong Stock Exchange.
"On the other hand, given the tight market liquidity and volatile capital market, deposit expansion will be more difficult, and the pressures from regulation monitoring and peer competition set higher demand for management capabilities."
China has stepped up efforts in recent months to curb property and infrastructure lending, conducted stress tests on mortgage loans and increased scrutiny over banks' loan books, triggering investor concerns over banks' asset quality after a lending binge last year.
CCB earned a net profit of 35.6 billion yuan ($ 5.24 billion) during the April-June period, compared with 29.6 billion yuan a year earlier.
The results beat the expectations of seven analysts polled by Reuters, who forecast on average that CCB's quarterly profit would rise 16 percent to 34.3 billion yuan.
In the first half, CCB's profit rose 27 percent. That compares with a 60 percent jump at China Merchants Bank and a doubling in earnings at newly-listed Everbright Bank.
"The growth is higher than I expected," said Jin Lin, analyst at Orient Securities Co in Shanghai. "Loan expansion will be the main driver of profit growth for banks in the future and the average annual growth will be around 15 percent for the industry."
CCB shares fell 0.15 percent in Hong Kong on Friday before earnings were released. The stock has dropped 1.95 percent this year, compared with a 4 percent fall in the benchmark Hang Seng Index (HSI).
In the same period, CCB's Shanghai-listed shares have fallen 22.5 percent.
FUNDRAISING
CCB plans to sell 75 billion yuan ($11.1 billion) worth of shares in Shanghai and Hong Kong as early as the fourth quarter to replenish capital, sources with direct knowledge of the fundraising scheme told Reuters this month.
The lender's capital adequacy ratio -- a key measure of banks' financial strength -- stood at 11.68 percent as of June 30. That compares with the 11.5 percent minimum required for listed state lenders.
Analysts caution that banks face increasing uncertainties, including risks of rising bad loans following last year's 9.6 trillion yuan government-backed lending spree, a slowing recovery in interest margins and a tightening regulatory environment.
Major Chinese banks, including Industrial and Commercial Bank of China and Bank of China have also announced plans to raise billions of dollars in the coming months to strengthen balance sheets.
"The domestic capital and property markets have undergone noticeable adjustments and experiencing increasing uncertainties about the future market direction," CCB, whose mortgage loans account for 18 percent of total, said in the statement.
To ward off potential risks, the China Banking Regulatory Commission (CBRC), the industry watchdog, this month instructed lenders to test the impact of a fall in house prices of up to 50 percent in key cities where prices have risen sharply, banking and regulatory sources told Reuters.
"In light of the developments in the property market, the bank took initiatives to check the growth of lending to the real estate sector," CCB said, adding that such loans only grew 5.6 percent during the first six months.
