China Construction Bank Corp., the nation’s second-largest lender, posted profit growth that decelerated to 12.4 percent as the weakest economic expansion in three years crimped demand for financial services and led to more defaults.

Third-quarter net income climbed to 51.9 billion yuan ($8.3 billion), or 0.21 yuan a share, from 46.2 billion yuan, or 0.18 yuan a share, a year earlier, the Beijing-based lender said in a statement yesterday. That’s in line with the 51.9 billion-yuan average estimate of nine analysts in a Bloomberg survey.

Construction Bank, the world’s second-largest by market value, posted slower profit growth than Agricultural Bank of China Ltd. and Bank of China Ltd. as it struggles to curb rising defaults and maintain margins amid the faltering economy. Banks face further challenges in the next six months, according to Deutsche Bank AG, which said third-quarter results won’t fully reflect challenges including interest-rate cuts.

“The third-quarter growth rates of Chinese banks cannot mask their deteriorating operating trends,” said Xie Jiyong, a Shanghai-based analyst at Capital Securities Corp. “Even though big banks are still holding onto their loan pricing power, interest-rate deregulations will eventually hurt everybody’s margins.”

China’s economy expanded 7.4 percent from a year earlier in the third quarter, compared with 7.6 percent in the April-June period. The International Monetary Fund this month cut its forecast for 2012 global growth to 3.3 percent from a previous estimate of 3.5 percent.

Bank Shares

Shares of Hong Kong-traded Chinese banks have gained an average 1 percent this year, with Construction Bank up 5.9 percent. Banking stocks have rallied since mid-September as the U.S. announced a third round of quantitative easing and China’s sovereign wealth fund said it increased its stakes in the country’s four biggest lenders.

Agricultural Bank of China Ltd., the country’s third- largest lender by assets, on Oct. 26 posted third-quarter net income of 39.6 billion yuan, beating the 37.8 billion-yuan average estimate in a Bloomberg survey.

Profit growth at Bank of China, the fourth-biggest lender, accelerated to 17 percent, the fastest pace in more than a year, taking net income to 34.8 billion yuan compared with a consensus estimate of 32.7 billion yuan.

Overseas Operations

Bank of China’s overseas operations reduced the effect of a narrower interest rate spread in China, analysts including Mike Werner of Sanford C. Bernstein & Co. said. Foreign operations accounted for about 24 percent of total assets at the end of June.

“We do not think the shares are trading on the operating or financial fundamentals of the banks,” Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd., wrote in a note on Oct. 24. Many banks “will correct 5 percent to 10 percent after earnings announcements, due to the continuing credit quality overhang.”

Banks’ profits may grow by an average 10 percent in the third quarter, slowing from 15 percent in the second quarter and 17 percent in the first three months, Antos predicted.

Construction Bank extended 769.6 billion yuan of new loans in the first nine months, taking the outstanding amount to 7.3 trillion yuan. Non-performing loans rose to 72.9 billion yuan as of Sept. 30 from 70.4 billion yuan three months earlier, according to the statement.

The bank set aside 8.4 billion yuan against soured debt in the third quarter, compared with 6.9 billion yuan a year earlier.

Margin Widens

Construction Bank’s net interest margin, a measure of lending profitability, widened to 2.74 percent, up 6 basis points from a year earlier.

The central bank in June allowed lenders to widen the discount on borrowing costs to 20 percent, and then broadened the limit to 30 percent the following month, accelerating the liberalization of interest rates. Banks were also permitted to offer deposit rates at 10 percent above the benchmark, the first time a premium has been allowed.

While the four biggest state-owned lenders are limiting discounts on loans to 10 percent of the benchmark borrowing rate, even for their best corporate clients, they are paying out more to savers as competition for deposits intensifies.

China’s official one-year lending rate is 6 percent, while the deposit rate is 3 percent after two cuts since June. Construction Bank and its three largest rivals are offering 3.25 percent on one-year deposits.

Construction Bank’s net interest income rose 18 percent to 91.3 billion yuan in the third quarter, while fee income, from businesses such as credit cards, trade finance and custodian services, fell 2 percent to 20.7 billion yuan.