Bank of China, the nation's largest foreign exchange lender, said first-quarter profit fell 14.41 per cent, hit by lower net interest and fee incomes. The bank said yesterday its net attributable profit for the quarter totalled 18.57 billion yuan (HK$21.08 billion), down from 21.7 billion yuan a year earlier but 320 per cent higher than in the previous quarter. The profit was largely in line with analysts' forecasts of 17 billion yuan to 19 billion yuan. But its incomes were weaker and impairment losses were smaller than expectations. In the first quarter, the bank 'proactively responded to the adverse effects' of the financial crisis to 'expand business volume, adjust business mix and control costs', a BOC statement said. Crimped by the five interest rate cuts since September last year, BOC's net interest income fell 9.74 per cent to 36.84 billion yuan, with the margin shrinking from 2.48 per cent at the end of last year to 2.14 per cent. New loans grew 15.51 per cent to 511.13 billion yuan in the quarter. Demand deposits made up 44.85 per cent of total deposits, up 0.23 percentage point from the end of last year. Exposure to overseas markets and falling global trade eroded BOC's net fee and commission income 4.71 per cent to 11.26 billion yuan. Bonnie Lai, an analyst with CCB International Securities, said the bank's net interest margin probably had bottomed out and its medium-term outlook was strong. 'BOC will be among the first to conduct cross-border yuan-denominated clearance and settlement business in five cities on a trial basis,' Ms Lai said. 'It is optimising business mix to stay away from the manufacturing sector and to lengthen the duration of loans to enhance its risk-return profile.' Also, BOC's investment losses would be minimised by a programme launched by the US Federal Reserve to buy back mortgage-backed securities, Freddie Mac and Fannie Mae securities and long-term government bonds. BOC wrote down the value of subprime-related assets and other securities by about US$380 million in the three months, taking total impairments to about US$4.84 billion since the end of 2007. It still held US$2.22 billion of subprime mortgage investments, US$1.05 billion of securities backed by Alt-A home loans and US$3.2 billion of other non-agency mortgage investments. BOC set aside 2.75 billion yuan for potential loan defaults, up 11 per cent year on year. Still, its bad loan coverage ratio was the lowest of the top three mainland banks at 123 per cent.