Industrial & Commercial Bank of China Ltd., 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 today.

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.

"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."

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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 ($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 just accounted for 10 percent of revenue at ICBC last year, and 18 percent at Bank of China. At U.S. banks, the ratio was 43 percent in 2005, according to China's banking regulator.

The regulator wants ICBC and other large State-owned banks to triple the share of revenue they get from fees and commissions during the next five to 10 years.

ICBC plans to open 1,000 wealth management centers this year, tripling the number in three years to compete against Citigroup Inc. and HSBC Holdings Plc. The foreign banks are targeting customers who have more than 500,000 yuan of net assets after China allowed full access to the industry and its US$2.2 trillion of household savings in December.

Beijing-based ICBC also plans to expand globally during the next two to three years to serve Chinese companies operating overseas, Jiang said today, without elaborating.

The bank aims to be the largest market maker for yuan trading, with a 1,000-employee team, once China allows full convertibility of its currency, he said.

ICBC has focused on increasing loans to fuel an economy that grew 11.1 percent in the first quarter and has doubled in size since 2001. The bank's profit jumped 31 percent last year to 49.3 billion yuan.

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