UPDATE 2-Bank of China’s record profit bodes well for lenders

* BOC Q3 profit 27.22 bln yuan vs forecast 23.86 bln yuan

* Outlook improving on interest rate hike, economic growth

* Results to aid planned $8.8 bln rights offer

* HK shrs end 0.9% down before results; have beaten mkt YTD

* Expected to sign MOUs with two Taiwan banks at year-end
(Adds analyst comment, details from 14th paragraph)

By Faith Hung

TAIPEI, Oct 27 (BestGrowthStock) – Bank of China Ltd (3988.HK: ),
China’s No.4 bank by assets, posted a 29 percent rise in
third-quarter profit (Read more your timing to make a profit.) on strong lending and a resilient domestic
economy, as concerns of a rise in future bad loans after a 2009
lending binge began to recede.

The strong results bode well for its planned $8.8 billion
rights issue, even as it also stands to benefit from a surprise
interest rate hike by China’s central bank last week.

Bank of China’s results kick off the earnings season for
China’s “Big Four” state banks, which are expected to post
record quarterly profits on China’s robust economic growth and
stable asset prices despite government cooling measures.
[ID:nTOE69L0A3]

Chinese banks are also benefiting from a recovery in net
interest margins as the government exits its monetary stimulus
moves

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Graphic on comparison of top China banks:

http://link.reuters.com/mar42q

Graphic on net interest margins:
http://link.reuters.com/vej99p

StarMine comparative data: http://r.reuters.com/baj99p
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Bank of China (601988.SS: ), part-owned by Hong Kong tycoon
Li Ka-shing, said its net profit rose to a record 27.22 billion
yuan ($4.09 billion) during the July-September period from 21.1
billion yuan a year earlier.

The results beat an average forecast of 23.86 billion yuan
from five analysts surveyed by Reuters.

“The prospects for Bank of China look promising, as China
stocks have staged a rally and corporate earnings are on the
rise,” said Ryan Yen, a fund manager of Taipei-based Polaris.

“Still, the biggest risk is if real estate prices fall by
more than 30 percent next year.”

Yen said he had reduced his holdings in Bank of China
earlier this month, and plans to buy the shares at dips in
future.

China’s cabinet said earlier in the day it will take
measures to stabilise consumer prices and curb overly rapid
increases of property prices in some cities. [ID:nBJA002325]

Bank of China shares ended 0.9 percent lower in Hong Kong
on Wednesday before the earnings were released. The stock has
gained about 9 percent this year, outperforming the benchmark
Hang Seng Index’s (.HSI: ) 6 percent rise.

After lagging the market for most of this year as investors
worried about bad debts after a lending binge last year,
Chinese banking shares rebounded sharply this month on
prospects of excessive liquidity, fading fears over loan
quality and due to depressed valuations.

RIGHTS ISSUE

Bank of China plans to raise about 60 billion yuan through
a rights issue in Shanghai and Hong Kong by the end of this
year, part of a fundraising rush by Chinese lenders to
replenish capital depleted by the Beijing-backed 2009 lending
binge aimed at aiding an economic recovery.

Investor worries have eased in recent weeks over banks’
loans to local government infrastructure projects and the real
estate sector, amid signs regulators will take a gradual
approach to strengthen banks’ balance sheets following a number
of hikes to their various capital requirements.

Bank of China’s bad loans ratio was 1.1 percent as of Sept
30, down 0.42 percentage points compared with the end of 2009,
while loans grew 13.1 percent to 5.56 trillion yuan over the
same period.

China’s government’s new lending target to all banks for
2010 is 7.5 trillion yuan, versus 9.6 trillion for last year.

“Nobody’s worried about bad loans. The only reason they
beat expectations was because the credit cost at the lower end
was extremely low,” said an analyst at a western brokerage.

“The question is whether credit costs will remain at
extremely low levels.”

Net interest margin was 2.04 percent in the first three
quarters, up 0.01 percentage point from the year-earlier
period,

Separately, Bank of China will sign agreements with
Taiwan’s Mega Financial (2886.TW: ) and Chinatrust Financial
(2891.TW: ) by end of this year to explore cooperation, the two
Taiwanese banks said. Bank of China Chairman Xiao Gang is
currently in Taipei.

China’s other top three banks, Industrial and Commercial
Bank of China (1398.HK: ), Agricultural Bank of China (1288.HK: )
and China Construction Bank (0939.HK: ), are slated to report
third-quarter results this week.
($1=6.662 Yuan)
(Additional reporting by Samuel Shen in SHANGHAI and Terril
Jones in BEIJING; Editing by Muralikumar Anantharaman)

UPDATE 2-Bank of China’s record profit bodes well for lenders