The CITIC Group, China's biggest investment firm, has injected 5 billion yuan (US$625 million) into China CITIC Bank, preparing its lending unit to raise as much as US$2 billion in an initial public offering in Hong Kong.

The injection will improve the capital base of Beijing-based CITIC Bank, according to a statement issued by CITIC International Financial Holdings Ltd, a publicly traded unit of the CITIC Group.

CITIC International's stake in the bank will be diluted to 16.4 per cent from 19.9 per cent, it said.

"The strengthened financial position of CITIC Bank will enhance its attractiveness to potential investors," the statement said.

CITIC Bank needs funds to expand as rising incomes in the world's fastest-growing major economy increase demand for banking services and the market opens to overseas competition.

Smaller rivals to the nation's four biggest State-owned lenders, including CITIC Bank and China Merchants Bank Co, are under less pressure to make government-mandated loans, limiting defaults.

CITIC Bank hired Citigroup Inc, HSBC Holdings Plc, Lehman Brothers Holdings Inc, China International Capital Corp and CITIC Securities Co to arrange its stock offering in Hong Kong early next year, bankers familiar with the plan said in May.

China CITIC Bank, formerly known as CITIC Industrial Bank, was formed in 1987 by China International Trust & Investment Corp.

The lender's focus on services for individuals has helped net income grow 20 per cent annually over the past three years.

The bank plans to boost operating profit this year by 17.5 per cent to 7.4 billion yuan (US$925 million).

CITIC Bank's bad-loan ratio was 3.88 per cent as of December 31. Its capital adequacy ratio, a measure of financial strength, was boosted to 8.11 per cent after a bailout by its parent. The regulatory minimum is 8 per cent.

CITIC Group in April agreed to sell a 19.9 per cent stake in the Beijing lender to CITIC International, its Hong Kong-listed unit.

The parent also agreed to bolster its capital in CITIC Bank, if necessary, before a strategic investor commits money or the bank sells shares.

CITIC International said yesterday it was in early discussions about selling a stake to an overseas strategic investor, though no decisions have been made.

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