Bank of Communications (BoCom), the mainland's fifth-largest lender, admitted it faces an uphill task to maintain high interest income this year in the face of narrower margins. The Shanghai-based lender yesterday reported a 19.6 per cent increase in net profit for the first quarter of this year, earning 15.88 billion yuan (HK$19.5 billion). But the net interest margin, the difference between interest received and paid, decreased 2 basis points from a quarter earlier to 2.6 per cent. 'The margin has already been quite high,' said chief financial officer Yu Yali. 'Our goal is to keep the margin stable this year.' Interest income accounts for about 80 per cent of mainland banks' total revenue, as they benefit from the regulators' tight grip on interest rates. But a cyclical slowdown in the mainland economy curbed loan demand and ushered in more deposits, a development likely to narrow the interest margins for the banks. For the first three months, BoCom's interest income rose 19.5 per cent to 28.37 billion yuan as the net interest margin grew 9 basis points year on year. Its fee-based income jumped 21.9 per cent to 6 billion yuan. In March, BoCom announced it would raise 56.6 billion yuan from a share placement to a group of institutions including major shareholders HSBC and the mainland's national pension fund. Yu said the bank was confident the fund-raising proposal would be approved by shareholders on May 9. Separately, Agricultural Bank of China, the mainland's third-biggest lender, posted 27.6 per cent profit growth for the first quarter. The bank's first-quarter interest income climbed 21.7 per cent from a year earlier to 85.84 billion yuan. It didn't provide a quarter-on-quarter comparison, but the net interest margin increased 18 basis points from the same period last year. In 2011, the margin jumped 28 basis points from the previous year. All major mainland state-owned banks reported record profits last year, prompting Premier Wen Jiabao to contend that the largest lenders were enjoying a cosy monopoly of the market to earn easy money. Beijing's austerity measures in the property sector and monetary tightening have raised concerns about the performance this year of lenders, which are also grappling with a potential bad-loan crisis following a credit spree in 2009 and 2010. Analysts expected all banks' net interest margin to narrow this year after hitting record highs in 2011. Mainland banks were able to make high provisions to cover bad loans thanks to their fat interest income. But as they can't maintain the growth momentum in interest income, fears of poor overall performance this year are mounting among analysts and investors. China Merchants Bank said its first-quarter profits grew 32.2 per cent from a year ago to 11.64 billion yuan, while China Citic Bank's net earnings in the same period jumped 31.6 per cent to 8.56 billion yuan.