Bank of Communications (Bocom) yesterday reported a scant 0.53 per cent rise in earnings for the first quarter, as its increasing fee-based and investment incomes helped offset the drop in interest income because of a slimmer net interest margin. The mainland's fifth-largest lender posted first-quarter profit of 7.94 billion yuan (HK$9.01 billion) or 16 fen per share, slightly beating analysts' expectations of almost unchanged earnings from a year ago. The Shanghai-based bank, 18.6 per cent owned by HSBC Holdings, said outstanding loans jumped 21 per cent from the end of last year amid a lending spree to fund the nation's aggressive stimulus package. However, interest income declined 11.4 per cent to 14.58 billion yuan as the net interest margin dropped 76 basis points to 2.25 per cent, falling victim to the central bank's five interest rate cuts since September last year. Fee-based income increased 17.36 per cent to 2.41 billion yuan while other non-interest income contributed 990 million yuan to the overall net profit, compared with a loss of 379 million yuan in the same period last year. Bocom said its investment return rate grew 9 basis points to 3.83 per cent. 'Rapid loan growth posed a challenge to our risk-control capability,' Bocom vice-president Qian Wenhui told reporters. 'Bocom will chase a reasonable loan growth in the remaining year.' The bank's impaired loan ratio dropped to 1.62 per cent from 1.93 per cent and it set aside 10.3 per cent more in provisions for the bad loans, which totalled 1.95 billion yuan at the end of March. 'With a narrowed net interest margin and a potential increase in bad debts, the bank's earnings for this year may remain flat,' said TX Investment Consulting analyst Shi Lei. 'The provisions for bad debts should be closely watched since it remains unclear whether the loans are extended to quality borrowers.' Mr Qian said the bank aimed for earnings growth this year, but would not disclose a specific figure. He admitted that the majority of the first-quarter loans was extended to finance infrastructure projects in line with Beijing's 4 trillion yuan investment expansion plan. The lender's first-quarter performance beat rival Bank of China's earnings decline of 14.4 per cent to 18.57 billion yuan in the same period. It, however, trailed growth at Industrial and Commercial Bank of China, which reported a 6.16 per cent first-quarter profit increase to 35.15 billion yuan.