INDUSTRIAL & Commercial Bank of China Ltd (stock code: 601398), the nation's largest, seeks licenses for investment banking, insurance and leasing to diversify away from lending as higher interest rates erode profit margins, its chairman said.

"With the development of capital markets, our corporate clients will have cheaper alternatives for fundraising and cut their reliance on bank loans," Jiang Jianqing told investors at the Beijing-based company's first annual shareholder meeting yesterday.

ICBC, whose Shanghai-traded shares have fallen 18 percent this year, is expanding into new areas as rising interest rates cut into lending profit. China's central bank, for the first time since 1993, raised rates for deposits more than lending on May 18, cutting into banks' net interest margins, Bloomberg News reported.

"ICBC and Bank of China suffered most from the margin squeeze following the recent rate hike," said Claude Tiramani, who manages about US$3 billion of emerging market assets, including ICBC, for BNP Paribas Asset Management in Paris. "ICBC's management should do more to increase non-interest income."

ICBC and rival Bank of China Ltd have a higher share of longer-term deposits, on which rates were lifted, boosting costs to fund loans. Income was hurt by larger ratios of mortgage loans, on which rates rose less than on shorter-term borrowing. The central bank's increases so far will slash ICBC's 2007 profit by 500 million yuan (US$65.4 million), Jiang said.

China's banks rely on interest margins, the difference between what they pay depositors and charge on loans, more than foreign rivals. Non-interest income accounted for 10 percent of revenue at ICBC last year, and 18 percent at BOC. At US banks, the ratio was 43 percent in 2005, according to China's banking regulator.