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Tue, Aug 28, 2007 - Page 10 News List

Bank makes provisions for subprime securities

AFP , HONG KONG

China Construction Bank (中國建設銀行), the country's third largest lender, said yesterday it held US$1.06 billion of securities that are backed by US subprime mortgages but added this would have limited impact on the group.

The lender said it has set aside 139 million yuan (US$18.3 million) 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 largest and second-largest lenders, the Industrial and Commercial Bank of China and the Bank of China (BOC), reported that they held subprime-related mortgage-backed securities that are worth US$1.23 billion and US$9.65 billion 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 US$4 billion and US$5 billion.

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 5 percent on Friday although they had rebounded 3.36 percent to US$4.0 in mid-morning trade yesterday.

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 billion yuan 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 yuan a year earlier.

Interest income grew to 130.9 billion yuan from 100.48 billion yuan.

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