Shanghai Pudong Development Bank Co, a partner of Citigroup Inc, said first-quarter profit rose 34 percent as it increased loan margins and boosted lending in a surging economy, Bloomberg News reported yesterday.

Net income at the Shanghai-based national bank climbed to 978.3 million yuan (US$126.8 million) from 732.1 million yuan a year ago, the firm said in a statement to the city's stock exchange on Friday. Earnings per share rose 20 percent to 0.23 yuan in the period, the statement said.

China's economy expanded at 11.1 percent in the first quarter, driving consumer and corporate demand for loans. The central bank raised lending rates three times in the past year while boosting deposit rates only twice, making loans more profitable for banks including Pudong Development and China Minsheng Bank Corp.

"Loan growth is strong at Chinese banks, but the picture might not be as rosy as what you see," said Dominic Chan, an analyst at CLSA Asia-Pacific Markets in Hong Kong. "Bad loans might increase at Shanghai-based banks like Pudong Development as the city's property market weakens and mortgage defaults grow."

Pudong Bank said first-quarter non-performing loans were 1.8 percent of the overall, down from 1.83 percent at the end of 2006. The bank's capital adequacy ratio, a measure of financial strength, fell to 9.02 percent from 9.27 percent.

Net interest income gained 31 percent from a year earlier to 5.07 billion yuan, according to the statement, and net intermediary income rose 39 percent to 153 million yuan.

Total loans expanded 7.6 percent from the end of the year to 495.8 million yuan, while deposits over that period grew 0.9 percent to 601.7 million yuan, the company said.

The People's Bank of China is trying to curb bank loans to slow surging property prices and investment that threaten to overheat the economy. It raised the benchmark one-year lending rate by 0.27 percentage points to 6.39 percent on March 17 and increased the one-year deposit rate by the same, to 2.79 percent.

Pudong Development Bank released earnings after the markets closed. The bank's shares fell 3.1 percent to close at 27.49 yuan on Friday in Shanghai. They have climbed 29 percent since the end of 2006, underperforming a 40.5 percent gain in the benchmark Shanghai Composite Index.