2010-08-24 09:00

China Construction Bank Corp (CCB), China's biggest lender to home buyers, said recent declines in real estate prices will likely have little impact on operations, with overall bad loans kept at a low 1.2 percent.

The bank had also stopped extending mortgages to buyers of third or fourth homes, keeping non-performing loans (NPL) on real estate lending at around 1.97 percent, bank executives told reporters at a news conference on Monday to discuss its second-quarter results.

"A stress test is not our forecast of how we think the real estate market will do," said Chief Risk Officer Pang Xiusheng. "It is just a series of tests we run to see how we will do if things happen, and if property prices do fall there will only be a very limited impact on the bank."

China's banking regulator has ordered lenders to conduct stress tests on their businesses assuming a fall in housing prices of up to 60 percent, one of its measures to help cool the sizzling property market.

The NPL ratios of CCB and its peers in China have come under scrutiny in recent months amid fears that a lending spree last year under China's stimulus programme could see NPLs spiral out of control.

CCB reported a better-than-expected 35.6 billion yuan ($5.24 billion) second-quarter net profit on Sunday, helped by loan expansion and a recovery in interest margins.

The bank said it would also limit loan growth meant for real estate development to lower than 5 percent this year, amid broader fears that there was a real estate supply glut.

"We don't intend to have loans growing too much this year," said bank President Zhang Jianguo. "Loan growth for any real estate development will be kept at a rate that is manageable for the bank."

CCB also said some of its foreign shareholders may not subscribe to its $11 billion share sale, which it intends to complete by November, but did not identify those shareholders.

The bank's foreign shareholders include Bank of America Corp, which owns a 12 percent stake, and Singapore's sovereign wealth fund Temasek Holdings, with 6 percent.

"There's a very good chance we'll be able to complete the entire fundraising by October or November," said Pang. "There are some foreign shareholders who may choose not to subscribe to the rights offer, but we've received very good feedback from all of them."

Chinese banks have announced massive fundraising plans to replenish their capital after a lending binge in 2009, including Industrial and Commercial Bank of China Ltd's $6.6 billion rights offering.

CCB's Hong Kong-listed shares are down about 2 percent so far this year, beating a 4 percent decline by the benchmark Hang Seng Index .HSI.