SHANGHAI, April 27 (Reuters) - Bank of China (3988.HK) posted its biggest quarterly profit on China's strong economic recovery but the nation's third-biggest lender faces slowing growth as the government reins in lending and its fund-raising plans weigh on its shares.
Bank of China (601988.SS) and domestic rivals including ICBC (1398.HK) and China Construction Bank (0939.HK) continued to lend aggressively after last year's credit binge, fuelling an 11.9 percent growth in the economy in the first quarter of 2010 and putting pressure on the government to tighten liquidity.
Beijing has already asked banks to set aside more cash as reserves, tighten their mortgage lending and rein in loan growth this year. The government may introduce tougher measures to cool growth and head off inflation, raising concern that banks will suffer from dwindling loan demand and rising bad debts.
Bank of China's first-quarter profit jumped 41.2 percent to 26.23 billion yuan ($3.84 billion) from 18.57 billion yuan a year earlier, as it expanded its loan book by 8.2 percent during the first three months of the year.
The result was in line with expectations for a 26 billion yuan profit, according to the average of three analysts surveyed by Reuters.
Chinese banks extended 2.6 trillion yuan in new loans in the first quarter, boosting outstanding loans by 24 percent. That followed a record 9.6 trillion yuan in new loans last year.
The boom has stoked fears of economic overheating and prompted the authorities to take measures to tighten liquidity, especially to the red-hot property sector.
The lender won shareholder approval on March 20 to sell up to 20 percent of its existing shares and as much as 40 billion yuan ($5.86 billion) worth of bonds convertible into stocks.
Chairman Xiao Gang said last month that the bank may issue shares in Hong Kong soon in an offering that could strengthen its balance sheet by about $7.7 billion.
Bank of China shares in Hong Kong closed down nearly 1 percent on Tuesday before its earnings were released. The stock has fallen 4 percent this year, compared with a 3 percent drop in the benchmark Hang Seng Index .HSI.
Bank of China's bad loan ratio stood at 1.3 percent at the end of March while its capital adequacy ratio fell to 11.09 percent at end-March from 11.14 percent as of Dec. 31.
