China Construction Bank, the country's third largest lender, said Monday it held 1.06 billion dollar of securities backed by US subprime mortgages but added it will have limited impact on the group. The lender said it has set aside 139 million yuan (18.3 million US) as provision for investments rated "AA" or above.
"These securities are expected to have limited impact on the group's operating results for the year," it said in a statement. Last week, China's first and second-largest lender, Industrial and Commercial Bank of China (ICBC) and Bank of China (BOC), reported their holding of subprime-related mortgage-backed securities of 1.23 billion and 9.65 billion dollars, respectively.
The magnitude of BOC's exposure to the troubled US subprime mortgage market, where massive defaults have triggered a wider credit market crisis and roiled global financial markets, surprised the market. Most analysts have estimated that BOC's subprime-related holdings amounted to between four billion and five billion US dollars. The news prompted them to slash their recommendations on the stock on concerns over a profit squeeze for the full financial year.
It also sent BOC shares down more than five percent last Friday although they have rebounded 3.36 percent to 4.0 dollars in mid-morning trade on Monday. Meanwhile, China Construction Bank reported a 47 percent increase in net profit to 34.22 billion yuan in the six months to June on the back of a 37 percent increase in net interest income and a 102 percent surge in net fee and commission income.
The profit was in line with analysts estimate for a net profit of 32.31 to 35.65 billion yuan. It said its net interest income rose to 89.21 billion yuan from 65.29 billion yuan a year earlier, while net fee and commission income more than doubled to 12.66 billion yuan from 6.27 billion a year earlier. Interest income grew to 130.9 billion yuan from 100.48 billion yuan.
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