Bank of China Ltd, the nation's third-largest lender, said first-quarter profit surged 85 percent as loan growth and lower tax outweighed US$203 million in losses on investments linked to United States subprime mortgages.

Net income rose to 21.7 billion yuan (US$3.1 billion) from 11.7 billion yuan a year earlier, the Beijing-based bank said in a statement to the Hong Kong stock exchange yesterday. BOC cut holdings of subprime-related securities to US$4.4 billion on March 31 from US$4.99 billion three months earlier, Bloomberg News said.

The bank climbed 2.9 percent in German trading after the announcement on optimism that the worst of the mortgage market shakeout that led to US$1.5 billion of investment losses since July has passed. The bank's market value has risen by US$24 billion in the past month to US$164 billion, ranking it behind HSBC Plc and Bank of America Corp.

"Concern over Bank of China's subprime exposure is easing as investors get a fuller picture of its holdings," said Wang Jinsong, who manages 2 billion yuan at Galaxy Asset Management in Shanghai.

The bank paid 7 billion yuan in tax in the first quarter, 40 percent less than in the same period a year earlier. The government unified corporate income tax rates for domestic and foreign firms from January 1, cutting the rate for China firms to 25 percent from 33 percent.

China's economy has grown at over 10 percent for nine straight quarters, driving consumer and corporate demand for loans and other financial services such as asset management. The central bank raised interest rates six times last year, boosting the gap between lending and deposit rates.

BOC offered 226 billion yuan of new loans in the first three months, taking the outstanding amount to 2.98 trillion yuan.

(Shanghai Daily April 29, 2008)