China Construction Bank's 2022 Profit Growth Stronger Than Expected on Lower Provisioning Costs

China Construction Bank’s net profit growth for full-year 2022 came in at 7.1%, accelerating from the 6.5% growth in the first nine months and higher than we expected. With the dividend payout ratio steady above 30%, the 6.9% year-on-year increase in 2022's dividend to CNY 0.389 per share is another positive. However, the earnings growth was primarily driven by declines in provision expense, which was down 50% year on year in the fourth quarter and 8% for the full year. Preprovision operating profit declined 1.9% for the year while total revenue declined 0.2%. Net interest margin was slightly weaker than our expectation of a high-single-digit decline from 2021. Full-year NIM contracted 3 and 11 basis points, respectively, from the first three quarters and 2021, as the average loan rate fell 8 basis points while the average deposit rate rose 6 basis points from 2021. The contracting NIM was also due to an unfavorable loan mix change. As retail loan demand collapsed in the last quarter of 2022, CCB allocated 86% of new loans to low-yield discounted bank notes.