Bank of Communications, the mainland's fifth-largest commercial lender, said first-quarter profit rose 42.69 per cent as cost control and higher loan growth more than offset a fall in net interest margin. Bocom said net profit rose to 2.9 billion yuan in the first three months from 2.03 billion yuan in the same period a year ago. Earnings per share rose 20 per cent to six fen. Despite the government's warning of excessive credit growth, Bocom said its outstanding loan portfolio expanded 10.72 per cent since the end of last year to 852.1 billion yuan by March. The increase, slower than investment bank Macquarie's first-half forecast of 16.8 per cent, fuelled a 19.3 per cent rise in the lender's first-quarter net interest income over a year ago to 8.78 billion yuan. However, annualised net interest spread, the gap between the average yield of interest-earning assets and cost of interest-bearing liabilities - fell 0.14 percentage point from the end of last year to 2.44 per cent in the first quarter. Annualised net interest margin, the ratio of net interest income to the average interest-earning assets, narrowed by 0.13 percentage point to 2.51 per cent. The bank said the drop in margin was mainly due to a falling level of outstanding loans compared to interest-earning assets and an increase in the portion of new loans that were discounted bills with lower yields. Its funding costs also rose as more depositors switched from demand deposits to time deposits to take advantage of higher rates. The two net interest ratios were further dragged down by lower returns on yuan assets after the bank swapped its foreign currency initial public offering proceeds into yuan last year. Tighter cost control cut Bocom's cost-income ratio by 5.97 percentage points to 45.71 per cent at the end March from a year ago. Bocom's first-quarter earnings did not reflect the impact of the lending rate increase by the central bank last month. 'The government's move to [raise] lending rates in April and an expected increase in the deposit reserve requirement ratio in the coming months will slow loan growth moderately in the second half,' Macquarie said in its May 15 report.