BANK of Communications Ltd, China's fifth-largest, plans to raise as much as US$7.4 billion by selling shares and bonds to domestic investors as it seeks funds to extend more loans and credit cards.

The Shanghai-based bank will seek approval to sell as many as 4.5 billion yuan (US$571.52 million) denominated shares and 25 billion yuan of subordinated bonds, it said in a statement to the Hong Kong Stock Exchange yesterday. Based on Thursday's closing price in Hong Kong, its stock offering could raise US$4.2 billion.

BoCom, 19.9 percent owned by HSBC Holdings Plc, follows bigger rivals Industrial & Commercial Bank of China and Bank of China Ltd in tapping domestic investors after Shanghai's benchmark index surged 68 percent this year. The bank needs to replenish capital that's failed to keep pace with loan growth in the world's fastest-growing major economy, Bloomberg News said.

"Chinese banking stocks are all the rage right now as investors bet on potential benefit from the robust economic growth," said Zhang Ling, who helps manage the equivalent of US$2.4 billion at ICBC Credit Suisse Asset Management Co in Beijing. "Bank of Communications is expanding faster than the bigger rivals and therefore demand for capital is more urgent."

Shares of ICBC, the nation's biggest, have gained 22 percent on the mainland since their October 27 debut after an initial public offering. BOC, which also had an IPO this year, has risen 19 percent on the domestic market since July 5.

Proceeds from the share and bond sales will be used to shore up BoCom's capital. The lender's capital-adequacy ratio, an indicator of its financial health, fell to 11.09 percent as of September 30 from 11.52 percent at the end of 2005.

Although above the minimum required, the ratio still lags behind those of Hong Kong banks, which are generally above 16 percent, said Victor Tsang, who helps oversee US$50 million of assets at Quam Asset Management in Hong Kong.

Increasing lending reduces the proportion of capital to risk-weighted credit, forcing banks to raise more funds to sustain growth. BoCom had 911.2 billion yuan of outstanding loans as of September 30, an 18 percent increase from the end of 2005. China's banking regulator requires a minimum CAR of eight percent to protect depositors and absorb losses in case of bankruptcy.

"There's still ample opportunity for growth" in China, Tsang said. Also bank stocks are currently trading at high valuations, he said, making this a good time to raise money through the markets.

Chinese firms have sold US$14.7 billion of A shares since a sales ban was lifted in May, according to data compiled by Bloomberg.