Bank of Beijing has agreed to pay 127.5 million yuan (US$18.2 million) for a 19.99 percent stake in Langfang City Commercial Bank, the Beijing-based bank said today.

Bank of Beijing, which Dutch financial group ING holds 16.07 percent, said the investment returns on Langfang Bank are expected to be more than 20 percent in three years. Bank of Beijing will pay cash for the stake.

The investment is still pending the approval of shareholders and the regulator.

Bank of Beijing will send directors and experts to Langfang Bank to improve its management and trim risk exposure.

Hebei Province-based Langfang Bank posted a net profit of 143.67 million yuan at the end of 2007.

The investment is in line with Bank of Beijing's plan to expand outside Beijing. It already has set up footholds in Shanghai and Tianjin. The lender has also received regulatory approval to set up a branch in Xi'an, Shaanxi Province.

"The expansion can help the bank enjoy higher interest spreads as capital is adequate in Beijing with lots of big scale corporations," said China International Capital Corp in a report today.

CICC expects the bank to complete network expansion in cities such as Hangzhou, Shenzhen and Chongqing by 2009.

Bank of Beijing posted a net profit growth of 56 percent to 3.35 billion yuan last year. Its revenue climbed to 7.64 billion yuan, up 31 percent over a year ago.

The profit growth is within CICC's expectations. CICC expected the bank to post a profit growth of 46 percent this year and 29 percent in 2009.

Its capital adequacy ratio topped 20.11 percent at the end of 2007, up from 12.76 percent a year ago. It is far beyond the regulatory minimum of eight percent.

Its bad loan ratio decreased to 2.06 percent at the end of last year, down from 3.58 percent in 2006. The bank's provision against bad loans increased to 119.9 percent from 87.3 percent a year ago.

(Shanghai Daily April 7, 2008)