Reuters - Bank of China (BoC) , the country's fourth-largest lender by market value, posted a higher-than-expected 13.9 percent rise in first-quarter net profits as net interest margins widened and its capital ratio improved.

BoC's higher profit and rising capital adequacy, a measure of financial strength, will give comfort to investors as Chinese lenders brace for an expected rise in bad loans in the country this year as growth slows.

The bank's net profit rose to 45.4 billion yuan ($7.28 billion) in the first quarter, up from 39.8 billion yuan in the same 2013 period, according to the bank's unaudited financial statement posted in Hong Kong on Thursday.

The bank's rise in profits was higher than an average estimate of 41.8 billion yuan calculated from a Thomson Reuters poll of eight analysts.

"Bank of China, unusually among its peers, has been able to increase net interest margins by limiting the amount of high cost deposits it holds," said Raymond Yung, financial services leader for China at PriceWaterhouseCoopers in a media briefing ahead of the results announcement.

BoC's total capital adequacy rose sharply to 12.95 percent, compared to 12.46 percent at end-December last year. The capital adequacy ratio, a measure of a bank's financial strength, is one of the key metrics Chinese regulators are monitoring as China's slowing economy triggers a rise in bad loans.

Chinese banks' non-performing loan ratio rose to its highest level in two years in the last three months of 2013.

BoC's sharp rise in capital adequacy suggests the bank may struggle less than smaller peers to meet tough new requirements that the bank regulator began implementing last year in line with the global bank capital rules known as Basel III.

BoC's non-performing loan ratio increased slightly to 0.98 percent at end-March compared to 0.96 percent at end-December.

A senior bank regulator said earlier this month that bad loans are likely to rise this year as the government seeks to reduce overcapacity in some industries,

Net interest income was 76.5 billion yuan in the first quarter, a year-on-year increase of 14.2 percent while gains in net fees and commissions hit 29.0 billion yuan, a rise of 17.1 percent from the same period last year.

The bank's net interest margin was 2.29 percent at the end of the first quarter, from 2.24 percent at the end last year.

BoC's shares closed up 0.88 percent in Hong Kong on Thursday, ahead of the results announcement.