Bank of China shares defied a drop in the broader market to end 1.68 per cent higher in Hong Kong yesterday after analysts raised their targets following the bank's earnings report. The stock closed 4 HK cents up at HK$2.42 as investors welcomed the bank's higher than expected dividend payout announced on Tuesday. The Hang Seng Index fell 2.07 per cent. 'The payout ratio of 51 per cent of profit, against 45 per cent in 2007, is a positive signal for confidence and capital position,' said Citigroup Global Markets analyst Simon Ho. 'Bank of China remains inexpensive and is one of our preferred stocks in the sector.' Deutsche Bank raised its price target for Bank of China to HK$2.58 from HK$2.47. Macquarie Securities lifted its target to HK$2.59 from HK$2.50, while UBS increased it to HK$3.50 from HK$3.35. However, Bank of China's Shanghai-listed shares fell 2.31 per cent to 3.39 yuan (HK$3.85) as investors there were more concerned about the banking industry's prospects. The bank's net profit rose 14.4 per cent to 64.4 billion yuan last year, the slowest in three years. Moody's Investors Service analyst Richard Lung said: 'Although relatively insulated, China's banking industry will not escape collateral damage from the global economic recession.' Meanwhile, shares of unit BOC Hong Kong (Holdings) fell 2.3 per cent to HK$8.08 yesterday as its earnings, hit by massive write-downs, were worse than expected. 'We don't think that the investment provisions are completely behind us,' Morgan Stanley said in a report. The investment bank maintained an 'underweight' call on BOCHK but said the provisions for mortgage-backed securities might not suffice if the housing market in the United States worsened. Citigroup said the downside risks had been contained, given the US government's latest programmes targeting the purchase of mortgage-backed securities from banks. 'We recognise there now could be potential for write-backs, although it is still too early to gauge,' Citi said. Citi raised its earnings forecast on BOCHK by 55 per cent for this year after taking out the assumed loss from mortgage-backed securities, and upgraded its rating on the bank to 'hold' from 'sell' with a new price target of HK$8.50, from HK$6.60. Separately, the China Banking Regulatory Commission said the non-performing loan ratio at mainland commercial lenders, policy banks and rural co-operatives fell to 4.5 per cent at the end of February from 4.9 per cent at the beginning of the year. The ratio at commercial banks fell 0.24 percentage point to 2.2 per cent, it said.