Bank of China, in which Royal Bank of Scotland has a 4.2% stake, yesterday sought to reassure investors about the impact on profits of its exposure to the US sub-prime mortgage crisis.

The Beijing-based institution, which among Chinese banks has been hit hardest by the sub-prime debacle, said that it had made sufficient provisions to cover associated losses and promised it would report "marked" growth in profit for 2007.

A spokesman for Royal Bank, which has joined forces with Bank of China in the credit card, wealth management and corporate banking markets in the burgeoning communist eco- nomy, declined yesterday to comment on its partner's latest financial update.

Bank of China chairman Xiao Gang said: "We have noticed that the sub-prime market is worsening, but I want to say that our sub-prime portfolio has improved greatly. Under the precondition of prudent accounting, we have set aside sufficient provisions for all our sub-prime holdings."

Bank of China said last August, shortly after massive defaults on home loans by US households with poorer credit ratings kicked off a global credit crisis, that it held $9.65bn in US sub-prime-related securities. It said later that its exposure had fallen to $7.95bn by the end of September.

The Hong Kong-based South China Morning Post last month quoted banking sources as saying Bank of China was expected to make a big write-down of its US sub-prime-related investments in the fourth quarter of 2007, dragging down profit or even sending it into the red. However, the bank said last month in the wake of this report that its post-tax profit rose last year.

Xiao's statement yesterday appears to go much further than this, in terms of his reference to "marked" profit growth.

Meanwhile, shares in UK insurer Prudential rocketed nearly 5% yesterday after Xiao said Bank of China was looking actively to buy into a life insurer some time this year.

Although he cited talks with some Chinese insurers about taking an equity stake, he added that Bank of China would be open to overseas acquisitions should potential targets meet strategic needs. Prudential has a large Asian business.

Xiao also cited a surge in Bank of China's profits on syndicated loans, amid the ongoing global credit crunch.

He said: "Thanks to the global credit crunch brought by the US sub-prime loan crisis, profits for syndicated loans are rising remarkably. Our bank's overseas businesses will also see rapid development as a result."