China Construction Bank <0939.HK><601939.SS>, the world's No.2 lender valued at $193 billion, joined smaller rival AgBank <1288.HK> in reporting earnings lower than the market had expected as China's slowing growth squeezes its top lenders.

October-December net profit rose 23 percent to 30.25 billion yuan ($4.8 billion), according to Reuters calculations from full-year numbers. Full-year profit was up 25 percent at 169.3 billion yuan, just shy of a mean estimate for 170 billion yuan from 25 analysts surveyed by Thomson Reuters I/B/E/S.

CCB, which has Singapore state investor Temasek as a stakeholder, said loan-loss provisions rose by a fifth last year, higher than its 14.5 percent annual loan growth.

The higher bad loan costs highlight growing concern that non-performing loans at China's banks are likely to increase as growth in the economy slows. Premier Wen Jiabao this month forecast sub-8 percent GDP growth for the first time in eight years.

In 2012, the global economic environment is expected to become more severe and China's economic development faces numerous challenges, CCB said in a statement late on Sunday.

With the influence of weak global economic recovery and domestic economic restructuring, China's economic growth momentum will slow.

CCB said its impairment losses - charges taken to write down assets with a previously overstated valuation - rose 22 percent to 35.8 billion yuan last year.

Credit quality at CCB, China's largest mortgage lender, also worsened, with its non-performing loan (NPL) ratio rising to 1.09 percent at the year-end from 1.02 percent at end-September.

Yuan-denominated loans are expected to grow by about 12 percent this year, CCB said, slower than last year's 14 percent increase.

This month, the four big state-backed banks said they would lend more to qualified property developers to boost entry level housing supply, a signal they are ready to ratchet up property lending. For two years, China has restricted bank lending to the real estate sector to curb speculation in high-end housing that saw prices in key cities double in 18 months to end-2010.

The four banks - Industrial and Commercial Bank of China <601398.SS> <1398.HK>, CCB, Agricultural Bank of China <601288.SS> and Bank of China <601988.SS> <3988.HK> - which account for about 40 percent of total loans in China, will accelerate loan approvals for both developers and first-time home buyers, possibly charging first-time buyers lower rates.

China's housing market is vital for the health of the broad economy as real estate investment represents about 13 percent of China's GDP and drives demand in about 40 different industries.

On Thursday, third-ranked AgBank reported a drop in fourth-quarter net profit on rising bad loan costs and slowing credit growth. AgBank shares fell by the most in 6 weeks the day after its earnings.

Part of CCB's profit growth can be attributed to a lower dividend payout ratio, allowing the bank to keep more of its earnings. China's Central Huijin Investment, state parent of the country's top four lenders, cut that ratio last month for CCB, ICBC and Bank of China.

Shares in the country's big four state-owned banks, collectively worth some $700 billion, have dropped 6-12 percent this month, underperforming the broader Hang Seng <.HSI> benchmark's 4.7 percent decline.

($1 = 6.3078 Chinese yuan)

(Reporting by Kelvin Soh; Editing by Ian Geoghegan)