UPDATE 3-Bank of China sees loan rate slowing in H2

Thursday, August 27, 2009

* Q2 net profit 22.55 bln yuan, beating forecasts

* Interest margin narrows to 2.04 pct from 2.72 pct yr ago

* Bank upbeat on China's economy

(Adds comments from media briefing)

By Michael Wei and Clare Jim

BEIJING/HONG KONG, Aug 27 (Reuters) - Bank of China (3988.HK), the country's biggest foreign-exchange lender, expects to scale back lending in the coming months as Beijing moves to stem a break-neck increase in liquidity fuelled by a massive economic stimulus programme.

Bank of China (601988.SS) President Li Lihui said the pace of lending was likely to be slowed in the second half of the year "by a relatively big amount," after a surge in loans helped second-quarter earnings beat analysts' forecasts.

He added demand for credit was likely to be lower in the second half, and that his bank's loan growth for all of 2009 was expected to beat the industry average.

Li's comments came as further evidence that lending growth could slow sharply after hitting a record 7.4 trillion yuan ($1.08 trillion) in the first half, potentially adding to worries about the strength of China's economic recovery.

A likely end to an unprecedented lending surge that sustained the world's third-largest economy in the first half of the year may slow income growth at banks but will also reduce the level of bad-loan accumulation.

RAISING CAPITAL

Li said that his bank was also studying plans to raise capital, including potentially issuing subordinated bonds.

"We will study all options in the plan in a balanced way to decide the fund-raising channel which will be in the best interest of the Bank of China," Li said.

Despite the cautious note on loans, Bank of China on Thursday sounded an upbeat note on prospects for China's economy through to the end of the year.

"As China's economy is currently experiencing a critical period of stabilisation and recovery. The government will continue with its macroeconomic policies of maintaining a proactive fiscal and moderately relaxed monetary policy with a view to building up the economic base for further recovery," it said in a statement. Continued...

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