March 6 (Bloomberg) -- Bank of China Ltd. plans to sell as much as 120 billion yuan ($17.5 billion) of subordinated bonds over the next four years, the most among Chinese lenders, as it offers more credit to support an economic stimulus plan.

China’s third-largest bank by value will seek shareholder approval on March 23 to sell bonds with maturities of at least five years, the Beijing-based bank said in a statement today.

China’s financial institutions have sold 84.8 billion yuan of bonds in the first two months of this year to bolster capital as the government pushes them to support economic growth. Domestic banks, among the strongest after dodging the fallout of the U.S. subprime-mortgage market’s meltdown, now risk an increase in bad loans.

“Raising money to expand loans is key to reviving China’s economy while adequate capital beefs up the Chinese banking system at this time of global financial crisis,” said Liang Futao, research manager at Changjiang Pension Insurance Co. in Shanghai.

Loan defaults are the single biggest threat to Chinese banks, which face “a choppy 2009” because bad debts may swell after the economy slowed to 6.8 percent in the fourth quarter, the weakest pace in seven years, Fitch Ratings said in January.

Chinese Premier Wen Jiabao yesterday set a new loan growth target of 5 trillion yuan for 2009 in his speech to the nation’s parliament while avoiding boosting the government’s 4 trillion yuan stimulus package. China needs to “reverse the economic slide as soon as possible,” he said.

Record Loan Disbursal

Chinese banks gave out a record 1.62 trillion yuan of loans in January and more than 800 billion yuan last month, Liu Mingkang, chairman of the China Banking Regulatory Commission, said yesterday. The regulator plans to conduct spot checks of bank loan books to “ensure quality of growth,” Liu said in Beijing where the annual National People’s Congress is being held.

Bank of China’s capital adequacy ratio stood at 13.78 percent as of June 30. President Li Lihui said yesterday the bank increased lending “relatively fast” in the first two months, without giving more details. That compares with a ratio of 14.9 percent at Standard Chartered Plc, which raised 1.8 billion pounds from a rights offer in December.

Chinese banks are also raising capital to take advantage of lower interest costs after the central bank cut rates five times since September.

China Construction Bank Corp., the nation’s second largest, last month raised 40 billion yuan in the biggest bond sale in the Asia-Pacific region this year. The bank, which sold debt at the lower end of the coupon ranges, plans to sell 80 billion yuan of subordinated bonds over the coming two years.

ICBC’s Loan Target

Industrial & Commercial Bank of China Ltd., the country’s largest, said in August it may sell as much as 100 billion yuan of bonds after domestic loan growth and acquisitions overseas drained capital. ICBC advanced 338 billion yuan of new loans in the first two months of 2009, almost two-thirds of the bank’s lending target for the full year, President Yang Kaisheng said yesterday.

Subordinated bonds are counted as supplementary, or lower- Tier 2 capital. In the event of bankruptcy, holders of subordinated notes receive payment only after other debt claims are paid in full.

To contact the reporters on this story: Luo Jun in Shanghai at jluo6@bloomberg.net; Jiang Jianguo in Shanghai at jjiang@bloomberg.net

Last Updated: March 5, 2009 23:19 EST