Bank of China (BOC) plans to sell renminbi-denominated bonds worth 7 billion yuan in Hong Kong to enrich its capital reserve.

The country's second-largest lender is taking advantage of Hong Kong's rapidly increasing yuan reserve. And the bond sale should receive strong demand in the city, analysts say.

BOC Executive Vice President Zhu Min announced the plan after the lender's annual general meeting yesterday. But some details, such as issuing time, prices and interest rates, weren't given.

Tony Tong, a banking analyst at China Everbright Research, said that the success of the bond sale depends on the price and interest rate offered, "but generally speaking, the yuan bond should draw strong demand in the city".

The yuan's value has soared in the past year compared with the Hong Kong dollar. Tong said this makes the bonds more attractive to local investors. And, "holding yuan-denominated bonds is even better than having a yuan savings account", he said.

Faster yuan appreciation, fluctuation in the global monetary market and a decrease in the Hong Kong dollar's deposit rate are all driving yuan reserves up this year, the Hong Kong Monetary Authority (HKMA) said in a report.

Savings of the mainland currency have jumped more than 30 percent each month this year, and the total yuan reserve reached 76.6 billion in April, according to the HKMA.

A Goldman Sachs Group report said that the yuan's exchange rate against the US dollar may rise to 6.5 by the end of 2008 and register another 20 percent appreciation by the end of 2012.

As for the Sichuan earthquake's impact on loans in that area, BOC Chairman Xiao Gang said they account for just 1 percent of the bank's total. Those losses are also expected, Xiao said, "and we'll make writedowns accordingly".

China Merchants Bank, the nation's most profitable lender, plans to raise as much as 30 billion yuan from its biggest bond sale, after acquiring Wing Lung Bank.

The Shenzhen-based bank said this week that it may sell the subordinated debt on the mainland or overseas.

(HK Edition 06/20/2008 page2)