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Bank of China Profit Growth Slows After Loan Demand Eases

Bank of China Ltd., the country’s third-biggest lender by assets, said profit growth decelerated to 10 percent in the first quarter as the world’s second-largest economy slowed, curtailing loan expansion and margins.

Net income climbed to 36.8 billion yuan ($5.8 billion) from 33.4 billion yuan a year earlier, according to stock exchange filings by the Beijing-based lender yesterday. Profit compared with the 37.5 billion-yuan average estimate of 10 analysts surveyed by Bloomberg.

China’s economy expanded at the slowest pace in almost three years last quarter, increasing pressure on Premier Wen Jiabao to ease monetary policy. The central bank in February reduced lenders’ reserve requirements for the second time in three months to spur credit expansion and bolster economic growth without triggering gains in consumer and property prices.

“Profit growth at Bank of China slowed because of the country’s macroeconomic environment,” said Lewis Wan, who oversees $250 million in assets as chief investment officer at Pride Investments Group Ltd. “If China loosens its monetary policy, loan growth may pick up in the second half and bolster Chinese banks’ revenues.”

Shares (3988) in the lender have gained 47 percent in Hong Kong trading since a 2 1/2-year low on Oct. 4, on speculation that economic growth may accelerate as officials begin easing monetary policy. Bank of China fell 0.6 percent to HK$3.22 as of 10 a.m., compared with a 0.5 percent increase in the city’s benchmark Hang Seng Index.

Slower Loan Growth

Bank of China advanced 247 billion yuan of new loans in the first quarter, 17 percent less than a year earlier, according to yesterday’s statement. Profit growth declined from 10.8 percent in the previous quarter and 28 percent a year earlier.

Net interest income rose 13.2 percent to 60.6 billion yuan during the quarter while the loan margin stayed unchanged at 2.11 percent. Net fee and commission income, from businesses such as trade finance and custodial services, gained 13.8 percent to 21.2 billion yuan.

Premier Wen is trying to spur lending to smaller companies while restricting home loans that may inflate a property bubble. The risk of lending to real estate developers is growing as residential prices fall, Liu Mingkang, former chairman of the banking regulator, said last week.

Bank of China’s non-performing loans, or those overdue for at least three months, rose by 665 million yuan to 63.9 billion yuan at the end of March, and amounted to 0.97 percent of total loans.

‘Soft Landing’

Moody’s Investors Service on April 12 kept its “stable” outlook on Chinese banks, saying a “soft landing” of the economy will allow them to maintain profitability and manage what may be a gradual rise in non-performing loans. Economists at Nomura Holdings Inc., Deutsche Bank AG and Morgan Stanley last month increased their economic-growth forecasts for 2012.

Bank of China’s capital adequacy ratio narrowed in the quarter to 12.8 percent as of March 31 from 12.97 percent at the beginning of the year. The banking regulator said in August it will require the nation’s most important lenders to have a minimum ratio of 11.5 percent by the end of 2013. The core capital adequacy ratio stood at 9.97 percent.

‘Fundraising Pressure’

The bank “is likely to face higher fundraising pressure as its capital adequacy ratio declined,” Wan of Pride Investments said.

Bank of China was the only lender from the nation to be included on a provisional list of 29 systemically important financial institutions published by the Financial Stability Board, a body set up by the Group of 20 nations, in November. The global banks must hold additional capital buffers ranging from 1 to 2.5 percentage points under those plans.

Smaller rival China Minsheng Banking Corp., the nation’s first non-state lender, yesterday said its first-quarter net income rose 48 percent to 9.2 billion yuan. That beat the 8.5 billion-yuan average forecast in a Bloomberg News survey of nine analysts. Non-performing loans stood at 0.67 percent of total credit as of March 31.

To contact the reporter on this story: Stephanie Tong in Hong Kong at stong17@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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