* Q3 net profit 34.8 bln yuan, f'cast 32.7 bln yuan
* Q3 net interest margin 2.12 pct vs 2.1 pct in H1
* Q3 credit cost 0.27 pct vs 0.38 pct in 2011 Q3
(Recasts, adds comments from analysts)
HONG KONG, Oct 25 Bank of China Ltd,
the country's No.4 lender, posted its biggest quarterly profit
gain in a year after cutting back on bad-loan provisions,
prompting concerns that it may face a cash crunch if more
borrowers default as the economy worsens.
Bank of China, which reported a 17 percent increase in
third-quarter net profit, set aside the equivalent of 0.27
percent of its loan book. That was less than the 0.38 percent
set aside in the year-ago quarter to cover bad loans.
Economists have warned that some of the loans handed out
under China's massive stimulus package in 2008-2009 might turn
bad after the world's second-largest economy slowed for the
seventh consecutive quarter.
"Bank of China has traditionally been light on provisions,"
said Jim Antos, an analyst at Mizuho Securities in Hong Kong,
who has an 'underperform' rating on the stock. "Someday, they'll
have to play catch-up and pay for it."
The ratio is less than the average 0.5 percent in China, he
The lower provisions helped boost Bank of China's net profit
to 34.76 billion yuan ($5.57 billion) in July-September from
29.8 billion yuan a year earlier. That beat the average estimate
of 32.7 billion yuan in a Reuters poll of 12 analysts.
Profit also rose due to a wider net interest margin, which
measures loan profitability, the bank said.
The third-quarter profit would have dropped by 2 billion
yuan if the bank's impairment cost had met the industry average,
said Alexander Lee, a Hong Kong-based analyst at DBS Vickers.
"If the view is that a crisis is impending, then the
investor would be worried that a bank isn't putting aside
enough," said Lee, who has a 'buy' rating on the stock. "If you
see a soft landing, then it's good for investors because it
means higher profits."
Bank of China said its non-performing loan ratio stood at
0.93 percent at the end of September, down from 0.94 percent at
the end of June. But by value, non-performing loans rose to 64.1
billion yuan from 63.6 billion yuan at the end of June.
The bank's Hong Kong-listed shares are up about 10 percent
so far this year, trailing the 14 percent rise on the benchmark
Hang Seng index.
The stock rose 1 percent to close at HK$3.15 on Thursday,
before the earnings announcement.
Net interest margin widened to 2.12 percent at the end of
September from 2.1 percent at the end of June, said Bank of
China, the first of the so-called "Big Four" banks to post
earnings for the third quarter.
The wider interest margin indicates banks are benefiting
from the central bank's decision in June to give lenders more
flexibility in setting their own rates by raising the ceiling on
deposit rates and lowering the floor on lending rates.
The policy shift initially fuelled concerns that interest
margins would be hit.
Ratings agency Moody's said in October that the liberalised
rates will cut banks' net profit by 28.5 billion yuan, or 3
percent of the industry's 2011 net income.
Industrial and Commercial Bank of China Ltd,
Agricultural Bank of China Ltd and China Construction
Bank Corp will report earnings through Oct. 30.
Bank of China's loan book expanded about 9 percent in
January-September, pointing to rapid loan growth in the third
quarter. In the first half, its loan book grew only 6.5 percent.
Still, overall earnings growth remains constrained by new
regulations implemented by regulators that restrict the kind of
fees banks can charge.
Fees and commission income, which had fuelled much of Bank
of China's earnings growth in the past two years, remained
largely flat in the third quarter at about 17 billion yuan. That
compares with the 14 percent growth it recorded in 2011.
($1 = 6.2480 Chinese yuan)
(Reporting by Kelvin Soh; Editing by Ryan Woo)