Aug. 24 (Bloomberg) -- China Construction Bank Corp. said excessive banking liquidity has caused bubbles, underscoring concern that lenders will rein in credit after the Shanghai Composite Index rose 64 percent this year.

“There are uncertainties in the economy and bubbles in the capital market,” Guo Shuqing, chairman of the nation’s second- largest bank, told reporters in Beijing today. “China’s banking system still has excessive liquidity.”

Chinese banks handed out a record $1.1 trillion of new loans in the first half to support the nation’s $585 billion economic stimulus package. Chinese stocks briefly entered a so- called bear market last week on concern the government would curb new loans to reduce speculation in stocks and real estate.

“Given the extraordinary loan expansion in the first half, there’s no doubt that some part of it has been diverted to equities and property,” said She Minhua, a Shanghai-based analyst at Haitong Securities Co. “The bubbles, if there are any, are still tolerable as the government is preoccupied with ensuring solid economic growth.”

China’s GDP expanded 7.9 percent in the second quarter while the benchmark Shanghai Composite Index rallied 25 percent as the nation became the first major economy to rebound from the global recession. The index has dropped 12 percent this month.

Tighter Rules

The China Banking Regulatory Commission last month required the nation’s lenders to raise reserves to 150 percent of their non-performing loans by the end of this year, up from 134.8 percent at the end of June. On July 27 it told banks to ensure loans intended for investment in fixed assets go to projects that support the real economy, and three days later announced plans to tighten rules on working capital loans.

Beijing-based Construction Bank, part-owned by Bank of America Corp., joined rivals including Industrial & Commercial Bank of China Ltd. in posting better-than-estimated results last week. Construction Bank said on Aug. 21 that first-half profit fell 4.9 percent to 55.8 billion yuan ($8.2 billion), while ICBC, the world’s largest bank by market value, on Aug. 20 said first- half net income climbed 2.9 percent to 66.4 billion yuan.

Construction Bank aims to achieve profit growth in the full year, Chief Financial Officer Pang Xiusheng said today. The lender may earn 101.9 billion yuan in 2009, compared with 92.6 billion yuan a year earlier, according to average estimate of 29 analysts surveyed by Bloomberg.

Lending Margins

The bank’s Hong Kong-listed stock gained 2.6 percent to close at HK$5.99 today. It’s risen 41 percent this year, compared with a 43 percent gain on Hong Kong’s Hang Seng Index.

Construction Bank, battling lower lending margins and concerned about the risk of rising defaults, extended 708.5 billion yuan of new loans in the first half and plans to reduce that by 70 percent to about 200 billion yuan in the second half, President Zhang Jianguo said in an Aug. 7 interview.

The regulator plans to tighten capital requirement for banks by requiring them to deduct all existing holdings of subordinated and hybrid debt sold by other lenders from supplementary capital, people familiar with the matter said last week. Banks have until Aug. 25 to give feedback, said the people.

Zhang said today the bank hasn’t received a regulatory directive on capital adequacy changes and it is confident it will meet any new requirement.

On Aug. 19 the Shanghai Composite Index briefly fell 20 percent from this year’s high, the threshold for a bear market, before ending the day down 19.8 percent.