Nonetheless, the mainland's first bank majority-owned by private enterprises posted a 47 per cent rise in net profit to 2.03 billion yuan last year on rapid expansion of loans and deposits.

Earnings per share reached 39 fen. Net income audited under international accounting standards was two billion yuan, the Shanghai-listed lender said.

The bank is likely to launch an initial public offering in Hong Kong in the second quarter of this year, projected to be worth as much as US$1 billion.

Net profit is forecast to grow a further 25 per cent this year to 2.55 billion yuan on revenue of 21.4 billion yuan.

Minsheng recorded a 49 per cent surge in core revenue last year to 17.9 billion yuan.

China unveiled a series of policy measures last year to rein in an overheating economy. These included credit tightening, which analysts expect to hurt corporate borrowers' earnings and ability to repay loans, in turn impairing asset quality at the nation's banks.

'The series of macroeconomic measures taken in 2004 to prevent overheating have shown their initial effect,' Minsheng's annual report said.

'Banks' non-performing loans were on the increase,' it added. 'Our company witnessed a significant rise in non-performing loans in the third quarter.'

By the end of the year, the absolute value of Minsheng's non-performing loans soared 45 per cent over a year earlier to 3.77 billion yuan.

However, a 43 per cent expansion of its loan book to 288.4 billion yuan helped keep the ratio of its non-performing loans to outstanding loans at 1.31 per cent.

The ratio, the lowest in China's banking industry, was marginally higher than the 1.29 per cent reported for December 2003.

Interest-rate increases implemented in October last year, the first in nine years, increased Minsheng's net interest expenses last year by 30 million yuan.

Intensifying industry competition contributed to a 0.29 percentage point decline in gross profit margin to 16.06 per cent.

With its Hong Kong listing approaching, Minsheng forecast this year's revenue to reach 21.4 billion yuan.

The bank targets a 23 per cent expansion in its deposit base to 470 billion yuan, after last year's 38 per cent growth to 380 billion yuan.

Outstanding loans are to grow at the same pace to 355 billion yuan.

Analysts are concerned mainland banks' rapid expansion will not only stretch their capital bases but also risk creating a new wave of non-performing loans in the future, although it may help mainland banks mask the increase in the stock of problem loans.

Minsheng's capital-adequacy ratio has fallen 0.03 percentage point over last year to 8.59 per cent in December despite a 5.8 billion yuan subordinated bond issue during the year, increasing the urgency to tap the capital markets for funds.

The bank has recommended a cash dividend of 70 fen per share and two-for-10 bonus shares for shareholders.