UPDATE 1-China Construction Bank posts 2.8% rise in Q1 profit

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BEIJING/SHANGHAI, April 28 (Reuters) - China Construction Bank Ltd (CCB) posted a 2.8% increase in first-quarter profit as China’s recovery from the COVID-19 pandemic accelerated and stoked demand for credit in the world’s second-largest economy.

Net profit rose to 83.1 billion yuan ($12.82 billion) in the three months through March 31 from 80.9 billion a year earlier, China’s No. 2 lender by assets said in a filing on Wednesday.

CCB and other big state-run banks have benefited as economic activity recovers in China from the coronavirus pandemic. Lending still makes up the bulk of their earnings, compared to their western peers, many of which have formidable investment banking and securities trading businesses.

That meant the Chinese lenders were not able to reap the trading bonanza derived by Wall Street banks in the first quarter, though they avoided costly missteps, like the big exposures to the failed Archegos fund, that their U.S. and European peers had.

But the Chinese banks have begun to pull back on their lending, amid Beijing’s worries about exuberance in some sectors such as property.

Xiao Yuanqi, vice chairman of the China Banking and Insurance Regulatory Commission (CBIRC), warned banks should be prepared in advance for pressures from a rebound of bad loans as adjustments to domestic and global supply chains are expected to cause some defaults.

China’s banking industry recorded a 1.5% year-on-year profit growth in the first quarter, while the bad loan ratio dropped to 1.89% from 1.92% at the end of 2020, CBIRC said earlier in the month.

CCB’s non-performing loan (NPL) ratio was 1.56% at the end of March, flat from three months earlier.

Total bad loans increased to 274.3 million yuan from 260.7 million yuan at the end of 2020.

The bank’s net interest margin, a key measure of profitability, declined to 2.13% at the end of March from 2.19% at the end of 2020. The fall was “mainly due to the steady progress of interest rate liberalisation, changes in product structure, and fierce competition for deposits”, said the bank.

$1 = 6.4841 Chinese yuan renminbi Reporting by Zhang Yan, Cheng Leng and Engen Tham; editing by Muralikumar Anantharaman, Jason Neely and Louise Heavens