Two large banks - Industrial & Commercial Bank of China and Bank of China - posted higher fourth-quarter profits on Tuesday, buoyed by the country's surging economy. But the state lenders were hurt by holdings in subprime-related securities in the United States.

Bank of China, hardest-hit among the country's big banks by subprime exposure, said it held $5 billion in asset-backed securities at the end of 2007, or 2.13 percent of its investment securities, and booked $1.58 billion in provisions and markdowns on the holdings.

The lender said, however, that it believed that it had booked sufficient provisions and did not expect to incur further losses if it unloads its subprime-related holdings.

Industrial & Commercial Bank said it held subprime-backed securities worth $1.23 billion at the end of December 2007 and booked $400 million as an allowance for potential losses on that portfolio.

Both banks said they expect comparatively muted loan growth this year, while Bank of China said it planned to step up overseas acquisition activity following a year when mainland Chinese financial institutions made several landmark investments abroad.

While the subprime damage incurred by both the two banks was broadly within expectations, one analyst said further losses are possible for Bank of China.

"At first glance, the impairment losses that they took seem to be lower than what other banks in the region have taken," Hong Yang-myung, credit analyst with Lehman Brothers, said. "It is possible they could continue to book additional losses going forward."

Bank of China lowered its subprime-related exposure from $7.95 billion in September after shedding its collateralized debt obligations and some of its asset-backed securities.

JPMorgan expected Bank of China to book a $1 billion subprime provision for 2007 and a further $1.5 billion in 2008, while Bear Stearns had expected impairment losses totaling 21.5 billion yuan ($3.05 billion) for 2007 and 2008.

Bank of China , in which Royal Bank of Scotland is a large shareholder, posted fourth-quarter profit of 10.78 billion yuan, up 3.9 percent from 10.37 billion yuan a year earlier and topping forecasts for profit of about 8 billion yuan, according to analysts polled Reuters Estimates.

Its overseas flagship, Bank of China (Hong Kong) Ltd, said it reduced its exposure to American subprime asset-backed securities to HK$4.1 billion ($526 million) at the end of 2007 from HK$12.8 billion at the end of June.

Industrial & Commercial Bank of China posted a 63 percent rise in fourth-quarter earnings, beating expectations, to about 18 billion yuan from 11 billion yuan a year earlier.