April 12 (Bloomberg) -- Bank of Communications Co., the nation's sixth-largest, may raise as much as $3.4 billion selling shares in Shanghai, testing a rally that has made the nation's banks the most expensive among Asia's emerging markets.

Bank of Communications, known as Bocom, plans to sell 3.19 billion yuan-denominated shares, the Shanghai-based company said in a prospectus today. The China Securities Regulatory Commission will review the application on April 16.

The lender joins China Citic Bank Co. to take advantage of soaring stock prices to sell shares and extend a lending boom that helped fuel the nation's 10.7 percent economic growth last year, the fastest in more than a decade. Banks are bolstering finances partly to fend off foreign rivals, who in December got access to China's $2 trillion in household deposits.

Since June 2005, six mainland banks have sold a combined $51 billion of IPO shares, including a $2 billion Shanghai offering by Industrial Bank Co. in February. Beijing-based China Citic Bank will hold a Hong Kong and Shanghai initial public offering of as much as $5.4 billion, the world's second-largest stock sale this year.

Shares of Chinese banks including the nation's two largest -- Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. -- have surged since their IPOs last year, enticing smaller competitors to follow suit. The benchmark Shanghai and Shenzhen 300 Index more than doubled in the past year.

HSBC Holdings Plc, which owns 19.9 percent of Bank of Communications, will have its ownership pared to 18.6 percent after the share sale.

Bank Stock Prices

``HSBC has yet to make any major changes to Bocom thus far, as reflected in its relatively weak fee income and deposit base,'' Dominic Chan, a Hong Kong-based analyst at CLSA Asia-Pacific Markets, wrote in a report last month. ``The HSBC-BoCom relationship is not unique, but a high HSBC premium is priced in.''

China has the most expensive bank stocks in Asia's emerging markets, trading at about 3.2 times estimated book value in 2007, compared with 1.7 times for peers in India and 1.4 times for Korea, according to a Morgan Stanley report on March 23.

Bank of Communications traded at 3.5 times estimated 2007 book value after shares surged 152 percent since its Hong Kong IPO in June 2005, compared with 3.3 times for China Construction Bank Corp. and 2.8 times for ICBC in Hong Kong. So-called A shares changed hands at a premium to Hong Kong counterparts.

Bank of Communications, with 2,600 outlets nationwide, posted a 33 percent profit gain in 2006 on loan demand. The bank, established in 1987, controlled about 4 percent of the nation's loan and deposit market by the end of last year.

To contact the reporter on this story: Luo Jun in Shanghai at jluo6@bloomberg.netBei Hu in Hong Kong at bhu5@bloomberg.net.

Last Updated: April 12, 2007 07:07 EDT