Bank of China's first-quarter profit rose 18 percent on higher demand for loans and more fees from selling financial products in the world's fastest-growing major economy.

Net income increased to 11.7 billion yuan ($1.5 billion), or 0.05 yuan a share, from 10 billion yuan, or 0.05 yuan a share, a year earlier, the Beijing-based bank said in a statement to the Hong Kong stock exchange yesterday.

Profit from fees and commissions rose by almost two-thirds as Chinese banks reaped more money from selling products such as mutual funds, with the nation's stock benchmark surging 70 percent this year. Also bank loans in China grew an average 6.2 percent in the first quarter, spurred by an economy that expanded a faster-than-expected 11.1 percent.

"China's large banks in general look quite alike and rely mainly on net interest income for revenue," said Wu Yonggang, a Shanghai-based banking analyst at Guotai Junan Securities Co. "What sets Bank of China apart is that fee-based income contributes a bigger share of its revenue because of its more diversified business."

Besides commercial banking, Bank of China has investment banking and insurance operations.

Bank of China last year sold a combined 14.1 percent stake through share sales of $11 billion in Hong Kong and $2.6 billion in Shanghai. Issuing new stock contributed to flat earnings per share in its unaudited first-quarter results, which were based on international accounting standards.

Shares Soar

Bank of China's Shanghai shares have surged 82.5 percent since they began trading on July 5, making the company the world's six-largest bank with a market value of $167.6 billion, according to data compiled by Bloomberg. Citigroup Inc. is first and Industrial & Commercial Bank of China Ltd., the nation's largest, is third.

Bank of China said net interest income in the first quarter rose 31 percent to 34.4 billion yuan from a year earlier. The increase stemmed from a wider net interest margin and more interest-earning assets, the statement said, without providing further details.

Net fee and commission income grew 64 percent to 5.2 billion yuan on expanding operations in fund distribution, bank cards, settling and clearing trades and credit guarantees and syndicated loans, the statement said. Assets under management in China's mutual fund industry soared 33 percent to 1.14 trillion yuan in the first quarter, according to Shanghai-based Z-Ben Advisors Ltd.

Currency-Related Losses

Bank of China, which derived almost half of its profit from international operations last year, booked a trading loss of 735 million yuan against a 1.1 billion yuan profit a year earlier on the appreciation of the Chinese yuan against major foreign currencies.

Still, "the bank's making a lot of great investments on bond trading and U.S. Treasuries," said Dominic Chan, a Hong Kong-based analyst at CLSA Asia-Pacific Markets.

Bank of China had a 606 million yuan gain from investment securities in the three months, almost quadrupling the year- earlier figure. Total assets expanded 5.1 percent since the end of last year to 5.6 trillion yuan at the end of March.

BOC Hong Kong (Holdings) Ltd., said today that operating profit in the first three months ended March 31 totaled HK$4.1 billion ($525 million). The Hong Kong unit of Bank of China Ltd., said operating profit before allowing for impaired loans was higher than the year-ago figure, without providing it.

Bank of China's Shanghai shares closed 2.1 percent lower today before the results announcement. Its Hong Kong shares slipped 1 percent.

Industrial & Commercial Bank on April 25 posted first- quarter net income of 18.7 billion yuan under international accounting standards. It didn't provide profit for the year- earlier period.

China Merchants Bank Co., the nation's seventh-largest, said earnings jumped 72 percent to 2.46 billion yuan in the three months under domestic accounting standards.